<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
LASON, INC.
(Exact name of registrant as specified in its charter)
-------------------------
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<C> <C> <C>
DELAWARE 7398 38-3214743
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
1305 STEPHENSON HIGHWAY
TROY, MICHIGAN 48083
TELEPHONE: (248) 597-5800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------------
GARY L. MONROE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1305 STEPHENSON HIGHWAY
TROY, MICHIGAN 48083
TELEPHONE: (248) 597-5800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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<C> <C>
LAURENCE B. DEITCH LELAND E. HUTCHINSON
FRED B. GREEN JOHN L. MACCARTHY
SEYBURN, KAHN, GINN, WINSTON & STRAWN
BESS, DEITCH AND SERLIN, P.C. 35 WEST WACKER DRIVE
2000 TOWN CENTER, SUITE 1500 CHICAGO, ILLINOIS 60601
SOUTHFIELD, MICHIGAN 48075 (312) 558-5600
(248) 353-7620
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
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=======================================================================================================
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share...................... $138,000,000 $41,818.18
=======================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 4, 1997
LASON LOGO
4,000,000 SHARES
COMMON STOCK
Of the 4,000,000 shares of Common Stock offered hereby (the "Offering"),
2,200,000 are being sold by Lason, Inc. ("Lason" or the "Company") and 1,800,000
shares are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the Common Stock offered by the
Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "LSON." On July 30, 1997, the last closing sale price for the
Company's Common Stock as reported on the Nasdaq National Market was $28.50 per
share.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 8.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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==================================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------------------
Per Share....................... $ $ $ $
- -------------------------------------------------------------------------------------------------------------------
Total(2)........................ $ $ $ $
==================================================================================================================
</TABLE>
(1) Before deducting estimated offering expenses of $ payable by the
Company.
(2) The Company and certain Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 600,000 shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
---------------------
The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company") in San Francisco, California, on or about , 1997.
ROBERTSON, STEPHENS & COMPANY
WILLIAM BLAIR & COMPANY
THE ROBINSON-HUMPHREY COMPANY, INC.
The date of this Prospectus is , 1997
<PAGE> 3
"THE INFORMATION MANAGEMENT COMPANY"
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RECORDS MANAGEMENT
- - Electronic Document Storage and Retrieval [Picture of several of the Company's
- - Electronic Conversion Services employees at computer workstations]
- - Micrographic Conversion Services
DOCUMENT MANAGEMENT
- - Print on Demand Solutions [Pictures of compact disks and of computer
- - High Volume Quick Turn Reprographics control panel of high speed copier/printer]
- - On-Site Facilities Management
BUSINESS COMMUNICATIONS
- - Digital Communications Services (fax, [Picture of multiple computer terminals]
electronic distribution, print and mail)
- - Priority Gram(TM) and PROXYGRAM(TM)
- - Database Management Services
</TABLE>
2
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 4
Risk Factors................................................ 8
The Company................................................. 15
Recent Acquisitions......................................... 16
Use of Proceeds............................................. 18
Price Range of Common Stock................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 28
Management.................................................. 41
Certain Relationships and Related Transactions.............. 49
Principal and Selling Stockholders.......................... 52
Description of Credit Agreement............................. 54
Description of Capital Stock................................ 55
Shares Eligible for Future Sale............................. 57
Underwriting................................................ 58
Validity of Common Stock.................................... 59
Experts..................................................... 59
Additional Information...................................... 59
Index to Unaudited Pro Forma Condensed Consolidated
Financial Information, Financial Statements and
Consolidated Financial Statements......................... F-1
</TABLE>
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Lason Document Express(TM), PROXYGRAM(TM) and Priority Gram(TM) are trademarks
of the Company.
The Company intends to furnish to its stockholders annual reports
containing audited consolidated financial statements examined by its independent
public accountants and quarterly reports containing unaudited consolidated
financial statements for each of the first three quarters of each fiscal year.
---------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SEE "UNDERWRITING."
3
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information, including "Risk Factors" and the consolidated financial statements
of the Company and the notes thereto (the "Consolidated Financial Statements"),
the unaudited pro forma condensed consolidated financial information of the
Company and the notes thereto (the "Pro Forma Financial Information"), the
financial statements of the Company's predecessor and the notes thereto, and the
financial statements of Image Conversion Systems, Inc. ("ICS"), recently
acquired by the Company, and the notes thereto, appearing elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. When used in this document, the words "anticipate,"
"believe," "estimate," and "expect" and similar expressions generally are
intended to identify forward-looking statements. The Company's actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," as well as those discussed elsewhere
in this Prospectus. As used in this Prospectus, unless the context otherwise
requires, the terms "Lason" and the "Company" refer to Lason, Inc. and include
Lason, Inc. and all of its subsidiaries and its and their respective
predecessors and subsidiaries. The information set forth herein is based upon an
offering price of $28.50 per share for the Common Stock offered hereby and,
unless otherwise indicated, assumes no exercise of the Underwriters'
over-allotment with respect to the Offering.
THE COMPANY
Lason provides integrated outsourcing services for records management,
document management and business communications. The investments the Company has
made in imaging and communications technology, personnel, equipment and systems
over the past decade have given it the capabilities and expertise necessary to
meet the growing and increasingly complex information management requirements of
its customers. The Company primarily serves customers in the manufacturing,
healthcare, financial services and professional services industries. The
Company's core competencies in input processing, data management and output
processing enable it to provide a broad range of services across a wide range of
media types and allow customers to fulfill their information management
outsourcing needs with a single vendor. The Company's strategy has been to offer
a wide range of services to its customers and to use technologically advanced
solutions to expand its service offerings. The Company's net revenues have grown
from $9.9 million for the year ended December 31, 1991 to $69.9 million for the
year ended December 31, 1996, representing a compounded annual growth rate of
approximately 47.8% over the last five years. The Company had net revenues of
$53.7 million for the six months ended June 30, 1997. Today, the Company employs
approximately 1,700 people, has operations in 15 states and provides services to
over 2,900 customers at 26 multi-functional imaging centers and at over 40
facility management sites located on customers' premises.
Since its initial public offering of Common Stock in October, 1996, the
Company has:
- Acquired seven information management companies which had aggregate 1996
revenues of approximately $42.4 million;
- Achieved significant internal revenue growth, excluding the results of
subsidiaries acquired after June 30, 1996, generating net revenues in the
quarter ended June 30, 1997 that were 27.0% higher than those achieved in
the quarter ended June 30, 1996;
- Increased the geographic presence of its operations from eight states to
15 states;
- Continued the development of its branding strategy by increasing its
emphasis on products such as Visions computer output to laser disk
(COLD), Lason Document Express (print on demand), Priority Gram and
PROXYGRAM; and
- Increased the availability under its credit agreement to $80.0 million.
4
<PAGE> 6
The information management industry is highly fragmented, consisting of a
large number of small companies providing limited service offerings. Therefore,
an important element of the Company's growth strategy is to make selected
acquisitions of companies with complementary technologies or customer bases to
consolidate its position as a provider of complete information management
services. Since June, 1995, the Company has acquired 15 companies. In
particular, since its initial public offering of Common Stock in October, 1996,
the Company has completed the acquisition of seven information management
companies, providing a range of services in 12 states, seven of which represent
new territory for the Company. See "Recent Acquisitions." The Company will
continue to seek and evaluate acquisition opportunities.
A key part of the Company's growth strategy is to continue to grow
internally as well as through acquisitions. The Company believes its internal
growth of approximately 27.0% for the quarter ended June 30, 1997 is in part
attributable to comprehensive marketing programs it has implemented to
facilitate the cross-selling of additional services to its customers.
Lason's information management service offerings generally can be divided
into the areas of records management, document management and business
communications. The Company's records management services include the scanning
and conversion of documents from a variety of input media to a digital format.
The Company also provides traditional microfilm and microfiche services. The
Company's newest records management offering, Visions computer output to laser
disk (COLD) service, provides laser disk storage and retrieval of records. The
Company's document management services include high-volume, quick turn-around
optical and digital printing, as well as facility management operations at
customer sites. The Company's newest document management service offering, Lason
Document Express (print on demand), allows documents to be stored digitally,
accessed on-line and printed and distributed locally or centrally, depending on
end-user requirements. The Company's business communications services provide
customers with rapid, reliable and cost-effective methods for making large-scale
distributions by fax, electronic distribution, print and mail of statements,
reports, proxy solicitations and letters to consumers and other target audiences
in response to specific events. The Company's database management system offers
list manipulation, sorting services and information search solutions so that
customers' data can be customized and updated for specific target market
mailings. The Company also provides customized processing services for over 400
collection agencies located throughout the United States.
Lason believes that companies will continue to increase their use of
outsourced information management services. To manage efficiently complex or
large volumes of documents, a customer would be required to make a significant
investment in equipment, processes and technology which may only be fully
utilized occasionally by a single user. Through outsourcing, companies can avoid
this capital investment, as well as the risks of obsolescence that arise from
rapid changes in document management technology. As companies seek to focus on
their core competencies and maximize asset utilization, they are increasingly
turning to outside parties who have the technological expertise, service focus,
rapid turn-around capacity and full range of capabilities necessary to manage
efficiently complex or large volumes of documents. In addition, the Company
believes that customers will seek a single vendor capable of furnishing all or
many of their document management needs rather than relying on multiple vendors
with varying areas of expertise.
The Company continues to take advantage of the trend toward increased
outsourcing of information management and the highly fragmented nature of the
information management services industry by continuing to pursue the following
business strategy:
- Provide a broad range of services that will allow both existing and new
customers to secure all of their needed information management services
from one source;
- Implement a comprehensive marketing program to facilitate the
cross-selling of additional services to customers who are now purchasing
only a limited number of services and to develop national brand
recognition of the quality and scope of Lason's services;
5
<PAGE> 7
- Make selective acquisitions to further broaden its geographic reach,
customer base and technological capabilities and to attain economies of
scale in purchasing, facility utilization and management;
- Develop additional high value-added applications, such as Lason Document
Express (print on demand), digital imaging services and Visions computer
output to laser disk (COLD), within its core service offerings; and
- Develop scalable applications utilizing an open architecture and modular
approach that will enable the Company to service the unique needs of
various customers across a broad range of volume requirements.
THE OFFERING
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Common Stock Offered by the Company......................... 2,200,000 shares(1)
Common Stock Offered by the Selling Stockholders............ 1,800,000 shares(1)
Common Stock to be Outstanding after the Offering(2)........ 11,145,893 shares(1)(2)
Use of Proceeds............................................. To repay indebtedness under the
Company's credit agreement, which
has been principally incurred to
finance acquisitions, and for
general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market Symbol............................... LSON
</TABLE>
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(1) Excludes 600,000 shares of Common Stock issuable upon the exercise of the
Underwriters' over-allotment option.
(2) Excludes 258,408 shares of Common Stock issuable upon the exercise of stock
options exercisable as of August 1, 1997.
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(In thousands, except per share amounts)
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<CAPTION>
PREDECESSOR COMPANY
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YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------ ------------------------------
PRO FORMA PRO FORMA
HISTORICAL AS HISTORICAL AS
----------------------------------------------- ADJUSTED ----------------- ADJUSTED
1992 1993 1994 1995 1996 1996(1)(2) 1996 1997 1997(1)(2)
------- ------- ------- ------- ------- ---------- ------- ------- ----------
(Unaudited)
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STATEMENT OF INCOME DATA:
Revenues, net of postage....... $18,852 $31,151 $41,151 $46,605 $69,937 $112,395 $27,089 $53,658 $64,624
Cost of revenues............... 13,176 20,684 27,238 31,227 47,587 72,937 17,696 37,147 44,159
------- ------- ------- ------- ------- -------- ------- ------- -------
Gross profit................... 5,676 10,467 13,913 15,378 22,350 39,458 9,393 16,511 20,465
Selling, general and
administrative expenses...... 3,139 6,980 8,377 9,406 12,628 24,440 5,256 8,395 12,799
Compensatory option expense.... -- -- -- 308 936 936 160 109 109
Amortization of intangibles.... 87 163 266 817 1,121 2,245 380 1,041 1,394
------- ------- ------- ------- ------- -------- ------- ------- -------
Income from operations......... 2,450 3,324 5,270 4,847 7,665 11,837 3,597 6,966 6,163
Interest expense............... 83 126 185 1,760 1,831 7 850 740 6
Other (income) expense, net.... 93 (21) (21) (66) (71) (124) -- -- (21)
------- ------- ------- ------- ------- -------- ------- ------- -------
Income before income taxes..... 2,274 3,219 5,106 3,153 5,905 11,954 2,747 6,226 6,178
Provision for income taxes..... -- -- -- 1,139 2,103 4,237 964 2,250 2,236
Minority interest.............. -- -- -- -- 71 71 28 98 98
------- ------- ------- ------- ------- -------- ------- ------- -------
Net income..................... $ 2,274 $ 3,219 $ 5,106 $ 2,014 $ 3,731 $ 7,646 $ 1,755 $ 3,878 $ 3,844
======= ======= ======= ======= ======= ======== ======= ======= =======
Pro forma provision for income
taxes(3)..................... 821 1,162 1,843
------- ------- -------
Pro forma net income........... $ 1,453 $ 2,057 $ 3,263
======= ======= =======
Primary and fully diluted
earnings per share(4).......... $ 0.33 $ 0.55 $ 0.84 $ 0.28 $ 0.43 $ 0.34
======= ======= ======== ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding.................... 6,192 6,764 9,131 6,188 9,099 11,380
</TABLE>
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COMPANY
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DECEMBER 31, JUNE 30, 1997
----------------- ------------------------------------
HISTORICAL
----------------- AS
1995 1996 ACTUAL PRO FORMA(5) ADJUSTED(6)
------- ------- ------- ------------ -----------
(Unaudited)
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BALANCE SHEET DATA:
Working capital........................................... $ 5,141 $16,926 $25,025 $ 27,219 $ 40,109
Total assets.............................................. 37,309 78,546 106,727 129,347 142,237
Long-term debt, less current portion...................... 18,777 4,101 27,400 46,300 --
Total stockholders' equity................................ 9,214 57,006 63,552 64,714 123,904
</TABLE>
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(1) Gives effect to the seven acquisitions completed by the Company in 1997, the
sale of 2,200,000 shares of Common Stock offered by the Company and the
application of the net proceeds from the Offering as if each had occurred as
of January 1, 1996. See "Recent Acquisitions," "Use of Proceeds" and Pro
Forma Financial Information.
(2) See Note 16 to the Notes to the Financial Statements of ICS. Further,
included in the pro forma as adjusted data of ICS for the six months ended
April 30, 1997 are approximately $625,000 of severance and related expenses.
(3) From its inception to January 17, 1995, the Company was an S Corporation
and, accordingly, was not subject to federal income taxes. The pro forma
provision for income taxes has been computed as if the Company had been
subject to federal income taxes for the periods presented and based on the
statutory tax rates then in effect. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 7 to the
Notes to the Consolidated Financial Statements.
(4) Earnings per share are not presented for the Predecessor (as defined in "The
Company") as such information is not representative of the capital structure
of the Company.
(5) Gives effect to the acquisition of ICS (the "ICS Acquisition") as if it had
occurred as of June 30, 1997. See Pro Forma Financial Information.
(6) Gives effect to the ICS Acquisition, the Offering and the application of the
net proceeds from the Offering as if each had occurred as of June 30, 1997.
See "Use of Proceeds" and Pro Forma Financial Information.
7
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RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the following risk factors, as well as the other information in this
Prospectus or incorporated herein by reference, in evaluating an investment in
the Common Stock. This Prospectus contains forward-looking statements which
involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," and "expect" and similar expressions generally are
intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such difference include those discussed in the
following risk factors.
RISKS OF ACQUISITIONS AND FAILURE TO INTEGRATE ACQUIRED BUSINESSES
One of the Company's principal strategies is to increase its revenues and
the markets it serves through the acquisition of complementary businesses. There
can be no assurance that the Company will be able to identify and acquire
attractive acquisition candidates, profitably manage such acquired companies or
successfully integrate such acquired companies into the Company without
substantial costs, delays or other problems. Acquisitions may involve a number
of special risks, including, but not limited to, adverse short-term effects on
the Company's reported financial condition or results of operations, diversion
of management's attention, dependence on retention, hiring and training of key
personnel, risks associated with unanticipated problems or liabilities and
amortization of acquired intangible assets, some or all of which could have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company occasionally experiences competition in the
pursuit of some or all of its acquisition candidates. Such competition may
result in an increase in the valuations received by candidates in this industry
and, consequently, may affect the prices the Company must pay for these
acquisitions. In addition, there can be no assurance that companies acquired in
the future will be profitable at the time of acquisition or that the companies
recently acquired or acquired in the future will achieve sales and profitability
justifying the Company's investment therein or that the Company will recognize
the synergies expected from such acquisitions. The failure to obtain any or all
of which could have a material adverse effect on the Company's businesses,
financial condition or results of operations. See "Recent Acquisitions" and
"Business -- Acquisition Strategy."
RELIANCE ON MAJOR CUSTOMERS; RISK OF CUSTOMER LABOR INTERRUPTIONS
For the years ended December 31, 1994, 1995 and 1996 and for the six months
ended June 30, 1997, General Motors Corporation accounted for approximately
54.9%, 48.6%, 32.0% and 22.0%, respectively, Ford Motor Company accounted for
approximately 12.2%, 11.8%, 19.0% and 17.1%, respectively, and Chrysler
Corporation accounted for approximately 4.0%, 4.6%, 5.5% and 2.7%, respectively,
of the Company's net revenues. General declines in the automotive industry could
cause a material reduction in demand by such customers for the Company's
products and services, and any such reduction in demand or loss of or material
decrease in the business from these customers could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- Customers."
Several of the Company's key customers have large numbers of employees
employed under collective bargaining agreements with the United Automobile,
Aerospace and Agricultural Implement Workers of America (the "UAW"). The failure
of such customers to maintain harmonious relationships with the UAW could result
in either a work stoppage or strike at any or all of their production
facilities, which could have a material adverse effect on the Company's
business, financial condition or results of operations.
8
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COMPETITION IN THE COMPANY'S MARKETS
The Company's businesses are highly competitive. A significant source of
competition is the in-house document handling capability of the Company's target
customer base. There can be no assurance that these businesses will outsource
more of their document management, records management and business communication
services needs or that such businesses will not bring in-house services that
they currently outsource. In addition, with respect to those services that are
outsourced, the Company competes with a variety of competitors, including large
national or multinational companies, which have greater financial resources than
the Company, and smaller regional or local companies. The Company's major
competitors, in addition to various regional competitors, include IKON Office
Solutions, Inc., Pitney Bowes Management Services, Inc. (a subsidiary of Pitney
Bowes, Inc.), Danka Business Systems PLC, Iron Mountain, Inc., Donnelley
Enterprise Solutions, Inc. and Xerox Business Services with respect to its
document management services; Dataplex Corp., F.Y.I. Incorporated and IKON
Office Solutions, Inc. with respect to its records management services; and
First Financial Management Corp. (First Image), Sun Guard Mailing Services and
Diversified Data & Communications with respect to its business communications
services. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressures
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
IMPORTANCE OF CONTINUED DEVELOPMENT OF NEW SERVICES
The introduction of competing services incorporating new technologies or
the emergence of new technical standards could render some or all of the
Company's services unmarketable. The Company believes that its future success
depends on its ability to enhance its current services and develop new services
that address the increasingly sophisticated needs of its customers. The failure
of the Company to develop and introduce enhancements and new services in a
timely and cost-effective manner in response to changing technologies or
customer requirements could have a material adverse effect on the Company's
business, financial condition or results of operations.
EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has experienced, and in the future may experience, significant
quarter to quarter fluctuations in its results of operations. Quarterly results
of operations may fluctuate as a result of a variety of factors, including, but
not limited to, the size and timing of customer contracts, changes in customer
budgets, variations in the cost of paper, the size and timing of acquisitions,
the integration of acquired businesses into the Company's operations, the number
and timing of new hires, the demand for the Company's services, the timing of
introduction of new services and service enhancements by the Company or its
competitors, market acceptance of new services, competitive conditions in the
industry and general economic conditions. The Company's businesses are also
typically seasonal as sales and profitability are typically lower during the
third and fourth quarters of the year resulting primarily from the shut-downs in
the automotive industry in July and December. In addition, the Company has
experienced substantial growth in recent periods, and there can be no assurance
that such rate of growth in revenues and profits can be maintained in the
future.
As a result, the Company believes that period to period comparisons of
results of operations are not necessarily meaningful and not necessarily
indicative of the results that the Company may achieve in any subsequent quarter
or a full year. Such fluctuations may result in volatility in the price of the
Common Stock, and it is possible that in future quarters the Company's results
of operations could be below the expectations of public market analysts and
investors. Such an event could have a material adverse effect on the market
price of the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Selected Quarterly
Information."
9
<PAGE> 11
FLUCTUATIONS IN PAPER PRICES
The price of paper increased significantly during 1995 and may increase in
the future. The Company generally has not been able to change its prices to
customers to include increases in paper prices. There can be no assurance that
the price of paper will not change in the future. Any significant increase in
the price of paper that cannot be passed on to customers could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
POTENTIAL LIABILITY FOR UNAUTHORIZED DISCLOSURE OF CONFIDENTIAL INFORMATION
A substantial portion of the Company's business involves the handling of
documents containing confidential and other sensitive information. Although the
Company has established procedures intended to eliminate any unauthorized
disclosure of confidential information and, in some cases, has contractually
limited its potential liability for unauthorized disclosure of such information,
there can be no assurance that unauthorized disclosures will not result in
liability to the Company. It is possible that such liabilities could have a
material adverse effect on the Company's business, financial condition or
results of operations.
RISK OF BUSINESS INTERRUPTIONS AND DEPENDENCE ON SINGLE FACILITIES FOR CERTAIN
SERVICES
The Company believes that its success to date has been, and future results
of operations will be, dependent in large part upon its ability to provide
prompt and efficient services to its customers. Certain of the Company's
operations are performed at a single location and are dependent on continuous
computer, electrical and telephone service. As a result, any disruption of the
Company's day-to-day operations could have a material adverse effect upon the
Company. There can be no assurance that a fire, flood, earthquake, power loss,
phone service loss or other disaster affecting one or more of the Company's
facilities would not disable these functions. Any significant damage to any such
facility or other failure that causes significant interruptions in the Company's
operations may not be covered by insurance and could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Business -- Facilities."
CONTROL BY PRINCIPAL STOCKHOLDERS
Certain of the Company's executive officers and employees and persons
affiliated with them (the "Executive Group") and Golder, Thoma, Cressey, Rauner
Fund IV, L.P. ("GTCR Fund IV" and, together with the Executive Group, the
"Existing Stockholders") own or control an aggregate of approximately 56.2% of
the outstanding shares of Common Stock. Upon the completion of the Offering, the
Existing Stockholders will hold in the aggregate, approximately 29.8% of the
outstanding shares of Common Stock (or approximately 26.6% if the Underwriter's
over-allotment option is exercised in full). These stockholders are likely to
continue to exercise substantial control over the affairs of the Company and
acting together would likely be able to elect a sufficient number of directors
to control the Company's Board of Directors (the "Board") and to approve or to
disapprove any matter submitted to a vote of the stockholders. See "Principal
and Selling Stockholders."
RISK OF INADEQUATE FINANCING FOR FUTURE ACQUISITIONS
The Company currently finances acquisitions, and intends to finance future
acquisitions, by using cash from operations, by issuing shares of Common Stock
and through borrowings under the Company's then existing credit facilities. The
Company will need additional debt or equity financing to continue its
acquisition strategy. There can be no assurance that the Company will be able to
obtain such financing if and when it is needed or that, if available, such
financing will be available on terms the Company deems acceptable. If the
Company does not have sufficient cash resources or availability under its then
existing credit facilities, or if the Common Stock does not maintain sufficient
value or potential acquisition candidates are unwilling to accept Common Stock
as part of the consideration for
10
<PAGE> 12
the sale of their businesses, the Company will be unable to continue its
acquisition strategy. The issuance of Common Stock in connection with any such
acquisition may be dilutive to the holders of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
LEVERAGE
As of July 31, 1997, the Company had total outstanding long-term
indebtedness of approximately $46.9 million, resulting in significant debt
service obligations. After giving effect to the Offering and the application of
the estimated net proceeds therefrom as described in "Use of Proceeds," the
Company will have no outstanding indebtedness. However, following the completion
of the Offering, the Company may incur additional indebtedness in connection
with future acquisitions or otherwise. The degree to which the Company is
leveraged has had and in the future could have important consequences to holders
of Common Stock, including: (i) the Company's ability to obtain additional
financing for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired in the future; (ii) a
substantial portion of the Company's net cash flows from operations must be
dedicated to the payment of principal and interest on such borrowings, thereby
reducing the funds available to the Company for its operations and other
purposes; (iii) certain of the Company's borrowings are and will continue to be
at variable rates of interest, which will expose the Company to the risk of
increased interest rates; (iv) the Company may be substantially more leveraged
than certain of its competitors, which may place the Company at a relative
competitive disadvantage; (v) the Credit Agreement (as defined) contains certain
financial and restrictive covenants, which, if not complied with, may result in
an event of default, possibly having a material adverse effect on the Company;
and (vi) because of its lesser financial flexibility, the Company may be unable
to adjust to rapidly changing market conditions and could be vulnerable in the
event of a downturn in general economic conditions or its business.
SIGNIFICANT INTANGIBLE ASSETS
As of June 30, 1997, approximately $57.0 million or 53.4% of the Company's
total assets were intangible assets consisting primarily of goodwill and
contract rights (approximately $70.8 million or 49.8% on a pro forma basis after
giving effect to the ICS Acquisition, the sale by the Company of the 2,200,000
shares of Common Stock offered hereby and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds" as if each had occurred on
June 30, 1997). The Company will incur non-cash charges as a result of
amortization of such assets over their lives. If the value of any such asset is
impaired, the Company could incur a significant non-cash charge in the period of
such impairment, and the market price of the Common Stock could be adversely
affected when the Company reports such charges, if any. In addition, in the
event of a sale or liquidation of the Company or its assets, there can be no
assurance that the value of such intangible assets would be recovered.
POTENTIAL LIABILITY FOR VIOLATIONS OF REGULATIONS; LITIGATION
Certain of the Company's customers, and certain of the Company's services
as used by those customers, such as collection letter processing, are subject to
various consumer protection laws, including the Fair Debt Collection Practices
Act (the "FDCPA"). From time to time, certain of the Company's customers and the
Company are subject to claims or are parties to litigation under such laws
involving services supplied by the Company to such customers, such as collection
letter processing. These actions sometimes relate to the form and content of the
collection letters distributed by the Company. Although the Company believes
that it is not subject to the FDCPA, there can be no assurance that the Company
will not be determined to be liable under such laws. Liability under the FDCPA
is limited. However, multiple violations of the FDCPA could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Regulation" and "-- Litigation."
11
<PAGE> 13
DEPENDENCE ON PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT
The Company regards the systems, information and know-how underlying its
services as proprietary and relies primarily on a combination of contracts,
trade secrets and confidentiality agreements to protect its proprietary rights.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to obtain and use information that the Company regards as
proprietary, and policing unauthorized use of the Company's proprietary
information is difficult. There can be no assurance that the obligations to
maintain the confidentiality of the Company's proprietary information will
effectively prevent disclosure or provide meaningful protection or that the
Company's proprietary information will not be independently developed by the
Company's competitors. Litigation may be necessary for the Company to protect
its proprietary information and could result in substantial cost to, and
diversion of efforts by, the Company. There can be no assurance that the Company
would prevail in any such litigation. If the Company is unable to protect its
proprietary rights, it could have a material adverse effect on the Company's
business, financial condition or results of operations.
In addition, there can be no assurance that third parties will not assert
claims against the Company alleging that the Company's proprietary rights
infringe on their proprietary rights. Any infringement claims, whether with or
without merit, can be time consuming and expensive to defend or may require the
Company to enter into royalty or licensing agreements or cease the infringing
activities. The failure to obtain such royalty agreements, if required, and the
Company's involvement in such litigation could have a material adverse effect on
the Company's business, financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend largely on the efforts and
abilities of its executive officers and certain other key employees.
Furthermore, the Company will likely be dependent on the senior management and
key employees of companies that may be acquired in the future. The failure of
any of these people to continue in their present roles, or the failure of the
Company to attract and retain other skilled employees, could have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company currently does not have employment agreements providing
for a definite term of employment with any of its executive officers or key
employees (other than its President and Chief Executive Officer) and does not
intend to obtain key man life insurance covering any of its executive officers
or key employees. See "Management."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or availability of such shares for future sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely effect prevailing market prices for the Common Stock.
Upon the completion of the Offering, 11,145,893 shares of Common Stock will be
outstanding (11,475,893 shares if the Underwriters' over-allotment option is
exercised in full). The 4,000,000 shares of Common Stock sold in the Offering
(plus up to 330,000 and 270,000 additional shares of Common Stock to be sold by
the Company and certain Selling Stockholders, respectively, if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act, unless such shares
are held by an "affiliate" of the Company as that term is defined under Rule 144
of the Securities Act ("Rule 144"). Upon the completion of the Offering,
approximately 3,546,731 shares of the currently outstanding shares of Common
Stock will not have been registered under the Securities Act. Of those shares,
3,214,436 shares will be eligible for sale under Rule 144 subject to certain
volume and other limitations (except for those shares subject to the lockup
agreements described below).
12
<PAGE> 14
The Company and certain of its stockholders, who upon the completion of the
Offering will hold an aggregate of 3,377,298 shares of Common Stock, have
agreed, for a period beginning from the date of the effectiveness of the
Registration Statement of which this Prospectus is a part and continuing to and
including the date 90 days after the date of the effectiveness of the
Registration Statement (the "Lockup Period"), not to sell or otherwise dispose
of, and the Company has agreed not to register, any shares of Common Stock or
any securities of the Company which are substantially similar to the shares of
Common Stock, including, but not limited to, any securities that are convertible
into or exchangeable for, or represent the right to receive, Common Stock or any
such substantially similar securities, without the prior written consent of
Robertson, Stephens & Company, except for the shares of Common Stock offered in
connection with the Offering. Upon the expiration of such Lockup Period, such
shares will be freely tradeable subject to the holding period, volume and other
limitations of Rule 144.
In connection with the formation of the Company, the Company and certain of
its stockholders, including GTCR Fund IV, certain members of the Company's
management, and persons affiliated with them, entered into a Registration
Agreement, dated as of January 17, 1995 (the "Registration Agreement"). Upon the
completion of the Offering, pursuant to the Registration Agreement, such
stockholders and their transferees, who will hold in the aggregate 3,182,553
shares of Common Stock, are entitled to certain demand and piggy-back
registration rights with respect to such shares of Common Stock which may be
exercised after the expiration of the Lockup Period. Such rights could be used
to force the Company to file a registration statement with respect to the Common
Stock owned by such persons. In addition, the holders of an additional 136,376
shares of Common Stock have certain piggy-back registration rights. The
existence of the Registration Agreement and such other registration rights and
the perception that sales of Common Stock could occur thereunder could adversely
effect the prevailing market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities. See "Recent Acquisitions," "Certain Relationships and Related
Transactions -- Registration Agreement" and "Shares Eligible for Future Sale."
Prior to the Offering, there has been a limited public market for the
Common Stock, and no assurances can be given as to the effect, if any, that
public market sales of shares of Common Stock or the availability of such shares
for sale will have on the trading price prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities. See "Shares Eligible for
Future Sale."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND STATUTORY PROVISIONS
The Company's Amended and Restated Certificate of Incorporation and By-Laws
provide for a classified board of directors, restrict the ability of
stockholders to call special meetings or take stockholder action by written
consent, contain advance notice requirements for stockholder proposals and
nominations and special voting requirements for the amendment of the Company's
Amended and Restated Certificate of Incorporation and By-Laws. These provisions
could delay or hinder the removal of incumbent directors and could discourage or
make more difficult a proposed merger, tender offer or proxy contest involving
the Company or may otherwise have an adverse effect on the market price of the
Common Stock. The Company also will be subject to provisions of the Delaware
General Corporation Law that will restrict the Company from engaging in certain
business combinations with a person who, together with affiliates and
associates, owns 15% or more of the Common Stock (an "Interested Stockholder")
for three years after the person becomes an Interested Stockholder, unless
certain conditions are met or the business combination is approved by the Board
and/or the Company's stockholders in a prescribed manner. These provisions also
could render more difficult or discourage a merger, tender offer or other
similar transaction. The Board has adopted a resolution approving any
acquisition of shares of Common Stock by GTCR Fund IV and its affiliates that
would otherwise result in GTCR Fund IV and its affiliates becoming an Interested
Stockholder. See
13
<PAGE> 15
"Description of Capital Stock -- Certain Provisions of the Amended and Restated
Certificate of Incorporation and By-Laws and Statutory Provisions."
Pursuant to the Amended and Restated Certificate of Incorporation, shares
of preferred stock may be issued in the future by the Company without
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board may determine in the exercise of its
business judgment. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, any preferred stock that may be issued in the
future. The issuance of preferred stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest or the assumption of control
by a holder of a large block of the Company's securities or the incumbent
management. See "Description of Capital Stock -- Preferred Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price for the Company's shares may fluctuate based on the
Company's operating results or in response to material announcements by the
Company or significant clients or competitors of the Company, changes in the
economic or other conditions impacting the Company's targeted client segments or
changes in general economic conditions. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. These fluctuations
have had a substantial effect on the market prices for many emerging growth
companies, often unrelated to the operating performance of the specific
companies. Such market fluctuations could have a material adverse effect on the
market price of the Common Stock.
14
<PAGE> 16
THE COMPANY
Lason Systems, Inc., a Michigan corporation and the predecessor to the
Company (the "Predecessor"), was formed in 1985 as a result of a management
buyout of the direct mail division of McKesson Corporation's 3PM subsidiary. The
founders and principal stockholders of the Predecessor were Allen J. Nesbitt, a
Director of and Senior Consultant to the Company and the then Vice President of
3PM, and Robert A. Yanover, the current Chairman of the Board of the Company and
the founder of 3PM. Annual revenues at the time of the buyout were approximately
$1.0 million, primarily from small, direct mail projects.
Today, the Company employs over 1,700 people, has operations in 15 states
and provides services to over 2,900 customers at 26 multi-functional imaging
centers and at over 40 facility management sites located on customers' premises.
For the year ended December 31, 1996, and the six months ended June 30, 1997,
the Company had net revenues of approximately $69.9 million and $53.7 million,
respectively. The Company's strategy has been to offer a wide range of services
to its customers and to use technology to expand its service offerings.
In January, 1995, the founders recapitalized the Predecessor (the
"Recapitalization") by selling substantially all of its assets to Lason
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Lason, Inc., which was then named Lason Holdings, Inc. In August, 1996, Lason
Holdings, Inc. changed its name to Lason, Inc. After the acquisition, Lason
Acquisition Corp. changed its name to Lason Systems, Inc. and continued the
business operation of the Predecessor. Shortly thereafter, the Company appointed
Gary L. Monroe, the former President of Kodak Imaging Services, Inc., a leading
international imaging business, as Chief Executive Officer of the Company. As
part of the recapitalization, GTCR Fund IV became the majority stockholder of
the Company. Messrs. Yanover and Nesbitt retained a major stock ownership
interest in the Company and continue to be active on the Board of Directors. Mr.
Nesbitt also serves as a Senior Consultant to the Company.
Since June, 1995, the Company has completed the acquisition of 15
companies. These acquisitions include the acquisition of 100% of the outstanding
common stock of ICS in July, 1997, 100% of the outstanding common stock of
American Micro Image, Inc. ("AMII") in June, 1997, 100% of the outstanding
common stock of Corporate Copies, Inc. ("CCI") in May, 1997, 100% of the
outstanding common stock of Automated Enterprises, Inc. ("AEI") in March, 1997,
100% of the outstanding common stock of Premier Copy Group, Inc. ("Premier") in
March, 1997, 100% of the outstanding common stock of Alpha Imaging, Inc. and
Alpha Micro Graphics Supply, Inc., two affiliated companies (collectively,
"Alpha"), in February, 1997, 100% of the outstanding common stock of Churchill
Communications Corporation ("Churchill") in January, 1997, 100% of the
outstanding common stock of National Reproductions Corp. ("NRC") in August,
1996, 100% of the outstanding common stock of Great Lakes Micrographics
Corporation ("Great Lakes") in July, 1996, 80% of the outstanding common stock
of Micro-Pro, Inc. and MP Services, Inc., two affiliated companies
(collectively, "Micro-Pro"), in July, 1996, 100% of the outstanding common stock
of Information & Image Technology of America, Inc. ("IITA") (now known as Lason
Systems, Inc., Southeast) in July, 1996, 65% of the outstanding common stock of
Delaware Legal Copy, Inc. ("Delaware Legal") in April, 1996, substantially all
of the assets of Diversified Support Services, Inc. ("Diversified") in February,
1996, substantially all of the assets of Mail-Away Corporation ("Mail-Away") in
January, 1996 and certain assets of Adcom Mailers, Inc. ("Adcom") and an
affiliated company in June, 1995. See "Recent Acquisitions."
Lason, Inc. was incorporated in Delaware in January, 1995. The Company's
principal executive office is located at 1305 Stephenson Highway, Troy, Michigan
48083, and its telephone number is (248) 597-5800.
15
<PAGE> 17
RECENT ACQUISITIONS
Since June, 1995, the Company has completed 15 acquisitions, including
seven since its initial public offering of Common Stock in October, 1996, with
aggregate revenues of approximately $42.4 million for the most recent fiscal
year prior to acquisition. A summary of those transactions follows:
<TABLE>
<CAPTION>
DATE OF
COMPANY ACQUISITION SERVICE PROVIDED LOCATION(S)
- -------------- -------------- -------------------------------------- --------------------
<S> <C> <C> <C>
ICS July, 1997 Document conversion to electronic and Cypress, CA
other media San Diego, CA
East Hartford, CT
Tampa, FL
Norcross, GA
Arlington Heights,
IL*
Medford, MA
Mendota Heights, MN
St. Louis, MO
AMII June, 1997 Records management and document Miami, FL
management services
CCI May, 1997 Imaging and document management Richmond, VA
services to the legal and commercial
markets
AEI March, 1997 Business communications services, Ashland, VA
including digital printing and related
data processing services for the
direct mail, financial and business
services markets
Premier March, 1997 Imaging and document management Atlanta, GA
services to the legal and commercial
markets
Alpha February, 1997 Micrographics and imaging services Jacksonville, FL
Churchill January, 1997 Business communications services, New York, NY
including electronic mail messaging,
data processing and proxy solicitation
services
NRC August, 1996 Imaging, reprographics and facilities Detroit, MI
management services Madison Heights, MI*
Southfield, MI
Great Lakes July, 1996 Item processing and item research Chicago, IL
services, including check processing, Indianapolis, IN
storage and archiving for the Grand Rapids, MI
financial services industry Kalamazoo, MI*
Livonia, MI
Micro-Pro July, 1996 Records management, principally in Albany, NY
traditional micrographic services Buffalo, NY
Rochester, NY*
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
DATE OF
COMPANY ACQUISITION SERVICE PROVIDED LOCATION(S)
- -------------- -------------- -------------------------------------- --------------------
<S> <C> <C> <C>
IITA July, 1996 Records management, traditional Jacksonville, FL
micrographics and scanning conversion
services to the healthcare and
financial services industries
Delaware Legal April, 1996 Imaging and document management Wilmington, DE
services to the legal and commercial
markets
Diversified February, 1996 Reprographics facilities management Chicago, IL*
Cleveland, OH
Mail-Away January, 1996 Overnight and priority mail creation Livonia, MI
and distribution services
Adcom June, 1995 Mass mail sorting services through Livonia, MI
electronic devices
</TABLE>
- -------------------------
* Denotes headquarters.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds from the sale by the Company of the 2,200,000 shares of
Common Stock offered by the Company will be approximately $59.2 million ($68.1
million if the Underwriters' over-allotment option granted by the Company is
exercised in full), after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company. The Company
intends to use approximately $46.9 million of such net proceeds to repay all of
its indebtedness under the Company's Amended and Restated Loan Agreement, dated
February 21, 1997, as amended, with First Union National Bank (the "Credit
Agreement"). As of July 31, 1997, the balance outstanding under the Credit
Agreement, which matures in 2001, was approximately $46.9 million. Borrowings
under the Credit Agreement bear interest at rates ranging from a base percentage
rate plus a maximum of 1.25% to LIBOR plus a maximum of 2.25%. The amounts
outstanding under the Credit Agreement were primarily used to finance the
acquisitions of Churchill, Alpha, Premier, AEI, CCI, AMII and ICS. See "Recent
Acquisitions," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Credit Agreement and
Borrowings" and "Description of Credit Agreement." Any remaining net proceeds
will be used for general corporate purposes. The Company will not receive any of
the net proceeds from the sale of the shares of Common Stock offered by the
Selling Stockholders.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol LSON since the Company's initial public offering of Common
Stock in October, 1996. The following table sets forth for each period indicated
the high and low sale prices for the Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR 1996
Fourth Quarter from October 9, 1996....................... $24.13 $14.00
FISCAL YEAR 1997
First Quarter............................................. $25.50 $17.75
Second Quarter............................................ $28.12 $16.00
Third Quarter through August 1, 1997...................... $29.39 $25.00
</TABLE>
On July 30, 1997, the last reported sale price of the Common Stock was
$28.50 per share. As of July 31, 1997, there were approximately 36 holders of
record of the Company's Common Stock.
DIVIDEND POLICY
The Company currently intends to retain any earnings to finance operations
and expansion and, therefore, does not anticipate declaring or paying any cash
dividends on the Common Stock in the foreseeable future. Future cash dividends,
if any, will be determined by the Board and will be based upon the Company's
earnings, capital requirements, financial condition and other factors deemed
relevant by the Board. The Credit Agreement does not permit the payment of
dividends without the consent of the lenders. See "Description of Credit
Agreement." Except for the payment of certain constructive dividends in
connection with the Company's initial public offering of Common Stock, the
Company has not paid any cash or other dividends on its capital stock.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of June 30, 1997 ("Actual"), (ii) the pro forma capitalization of the Company
as of June 30, 1997 giving effect to the ICS Acquisition as if it had occurred
as of June 30, 1997 ("Pro Forma") and (iii) the capitalization of the Company as
of June 30, 1997 as adjusted to give effect to the sale by the Company of the
2,200,000 shares of Common Stock offered by the Company hereby at an assumed
public offering price of $28.50 per share and the application of the estimated
net proceeds therefrom as described in "Use of Proceeds" ("As Adjusted"). This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," Pro Forma Financial
Information and the Consolidated Financial Statements appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------
Actual Pro Forma As Adjusted
------- --------- -----------
(Unaudited, in thousands)
<S> <C> <C> <C>
Long-term debt, less current portion........................ $27,400 $ 46,300 $ --
Common stock with a put option.............................. 1,060 1,060 1,060
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding........... -- -- --
Common Stock, $0.01 par value; 20,000,000 shares
authorized, 8,896,452, 8,943,893, and 11,143,893 shares
issued and outstanding (Actual, Pro Forma and As
Adjusted, respectively)................................ 89 89 111
Additional paid-in capital.................................. 54,577 55,739 114,907
Retained earnings........................................... 8,886 8,886 8,886
------- -------- --------
Total stockholders' equity............................. 63,552 64,714 123,904
------- -------- --------
Total capitalization................................. $92,012 $112,074 $124,964
======= ======== ========
</TABLE>
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the selected consolidated financial data of
the Company and the financial data of its Predecessor. The selected consolidated
financial data for the Company as of and for the years ended December 31, 1995
and 1996 included elsewhere in this Prospectus, and the selected financial data
for the Predecessor as of and for the years ended December 31, 1992, 1993 and
1994, have been derived from the consolidated financial statements of the
Company and the financial statements of the Predecessor, respectively, and have
been audited by Coopers & Lybrand LLP, independent public accountants, as
indicated in their reports included elsewhere in this Prospectus. The selected
financial data for the Predecessor as of and for the year ended December 31,
1992 has been derived from the financial statements of the Predecessor audited
by another independent accountant and is not included in this Prospectus. The
selected consolidated financial data for the Company for the six months ended
June 30, 1996 and 1997 has been derived from the unaudited consolidated
financial statements included elsewhere in this Prospectus that include, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to fairly present the data for such periods. Data for the
six months ended June 30, 1997 is not necessarily indicative of future results.
The table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Pro Forma
Financial Information, the consolidated financial statements of the Company, the
financial statements of the Predecessor and the related notes to each and the
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------- ---------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------ ------------------------------
PRO FORMA PRO FORMA
HISTORICAL AS HISTORICAL AS
----------------------------------------------- ADJUSTED ----------------- ADJUSTED
1992 1993 1994 1995 1996 1996(1)(2) 1996 1997 1997(1)(2)
------- ------- ------- ------- ------- ---------- ------- ------- ----------
(In thousands, except per share amounts)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues, net of postage........ $18,852 $31,151 $41,151 $46,605 $69,937 $112,395 $27,089 $53,658 $64,624
Cost of revenues................ 13,176 20,684 27,238 31,227 47,587 72,937 17,696 37,147 44,159
Gross profit.................... 5,676 10,467 13,913 15,378 22,350 39,458 9,393 16,511 20,465
Selling, general and
administrative expenses....... 3,139 6,980 8,377 9,406 12,628 24,440 5,256 8,395 12,799
Compensatory option expense..... -- -- -- 308 936 936 160 109 109
Amortization of intangibles..... 87 163 266 817 1,121 2,245 380 1,041 1,394
------- ------- ------- ------- ------- -------- ------- ------- -------
Income from operations.......... 2,450 3,324 5,270 4,847 7,665 11,837 3,597 6,966 6,163
Interest expense................ 83 126 185 1,760 1,831 7 875 740 6
Other (income) expense, net..... 93 (21) (21) (66) (71) (124) (25) -- (21)
------- ------- ------- ------- ------- -------- ------- ------- -------
Income before income taxes...... 2,274 3,219 5,106 3,153 5,905 11,954 2,747 6,226 6,178
Provision for income taxes...... -- -- -- 1,139 2,103 4,237 964 2,250 2,236
Minority interest............... -- -- -- -- 71 71 28 98 98
------- ------- ------- ------- ------- -------- ------- ------- -------
Net income...................... $ 2,274 $ 3,219 $ 5,106 $ 2,014 $ 3,731 $ 7,646 $ 1,755 $ 3,878 $ 3,844
======= ======= ======= ======= ======= ======== ======= ======= =======
Pro forma provision for income
taxes(3)...................... 821 1,162 1,843
------- ------- -------
Pro forma net income............ $ 1,453 $ 2,057 $ 3,263
======= ======= =======
Primary and fully diluted
earnings per share(4)......... $ 0.33 $ 0.55 $ 0.84 $ 0.28 $ 0.43 $ 0.34
======= ======= ======== ======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding............ 6,192 6,764 9,131 6,188 9,099 11,380
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------- --------------------------------------------------------
DECEMBER 31, JUNE 30, 1997
----------------------------------------------- ------------------------------------
HISTORICAL
----------------------------------------------- PRO AS
1992 1993 1994 1995 1996 ACTUAL FORMA(5) ADJUSTED(6)
------- ------- ------- ------- ------- -------- ----------- -----------
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 2,444 $ 3,307 $ 3,218 $ 5,141 $16,926 $ 25,025 $ 27,219 $ 40,109
Total assets........................... 10,814 13,877 15,692 37,309 78,546 106,727 129,347 142,237
Long-term debt, less current portion... 65 320 261 18,777 4,101 27,400 46,300 --
Total stockholders' equity............. 4,934 6,567 6,623 9,214 57,006 63,552 64,714 123,904
</TABLE>
- ---------------
(1) Gives effect to the seven acquisitions completed by the Company in 1997, the
sale of 2,200,000 shares of Common Stock offered by the Company and the
application of the net proceeds from the Offering as if each had occurred as
of January 1, 1996. See "Recent Acquisitions," "Use of Proceeds" and Pro
Forma Financial Information.
(2) See Note 16 to the Notes to the financial statements of ICS. Further,
included in the pro forma as adjusted data of ICS for the six months ended
April 30, 1997 are approximately $625,000 of severance and related expenses.
(3) From its inception to January 17, 1995, the Company was an S Corporation
and, accordingly, was not subject to federal income taxes. The pro forma
provision for income taxes has been computed as if the Company had been
subject to federal income taxes for the periods presented and based on the
statutory tax rates then in effect. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 7 to the
Notes to the Consolidated Financial Statements.
(4) Earnings per share are not presented for the Predecessor (as defined in "The
Company") as such information is not representative of the capital structure
of the Company.
(5) Gives effect to the ICS Acquisition as if it had occurred as of June 30,
1997. See Pro Forma Financial Information.
(6) Gives effect to the ICS Acquisition, the Offering and the application of the
net proceeds from the Offering as if each had occurred as of June 30, 1997.
See "Use of Proceeds" and Pro Forma Financial Information.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the related notes, the Pro
Forma Financial Information of the Company and the related notes and the other
related financial information included elsewhere in this Prospectus. The
discussion in this section of the Prospectus contains forward-looking statements
that involve risks and uncertainties. When used in this document, the words
"anticipate," "believe," "estimate," and "expect" and similar expressions
generally are intended to identify forward-looking statements. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors" and "Business," as well as those discussed
elsewhere in this section and elsewhere in this Prospectus.
OVERVIEW
The Company provides integrated outsourcing services for records
management, document management and business communications. The Company's
records management services include specialized solutions relating to the
process of scanning and converting documents and other inputs to a variety of
digital formats and micrographic services. The Company's document management
services include high-volume, quick turn-around optical and digital printing and
fulfillment, as well as facility management operations at customer sites. The
Company's business communications services provide customers with a reliable and
cost-effective method of distributing statements, reports and letters to
consumers and other target audiences. See "Business."
For the year ended December 31, 1996 and the six months ended June 30,
1997, the Company had net revenues of approximately $69.9 million and $53.7
million, respectively. The Company's strategy has been to offer a wide range of
services to its customers and to use technology to expand its service offerings.
Prior to 1992, the Company's growth was principally the result of internal
expansion of its direct mail operations. The Company began offering facility
management services in 1992, which during the period from 1992 through 1994
provided a substantial component of the Company's growth. Since 1994, increases
in the Company's collection letter operations and scanning and conversion
services, which became practicable as a result of advances in digital
technology, have been significant components of the Company's growth. Since
June, 1995, the Company has acquired 15 companies. The Company believes it has
developed an infrastructure and strategy to successfully integrate acquired
companies into its financial, purchasing and operating systems. The Company
believes that it can serve as a consolidator of the highly fragmented
information management services industry and that it can achieve economies of
scale through volume purchasing, enhanced facilities utilization and
consolidation of support staff and infrastructure. The Company's objective is to
cross-sell its full range of services to its existing customer base and to the
customer base of acquired companies. See "Recent Acquisitions" and "Business --
Acquisition Strategy."
The Company's revenues are generally recorded when it provides the goods or
services specified by a customer. Revenues are presented net of postage since
postage and similar delivery costs are generally passed through for
reimbursement directly from the customer. Costs of revenues consist principally
of wages and related benefits associated with providing the Company's services,
paper products and related supplies, and building and equipment expenses.
Selling, general and administrative expenses include expenses incurred in
connection with acquisitions, wages and related benefits associated with the
Company's executive and middle management, marketing and selling activities
(principally wages and related costs) and financial and other administrative
expenses.
21
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data of the Company as a percentage of net revenues:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- --------------------------------------------------------------
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- -----------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1994 1995 1996 1996 1996 1997 1997
----------- ----- ----- ----------- ----- ----- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............... 66.2 67.0 68.0 64.8 65.3 69.2 68.3
Gross profit................... 33.8 33.0 32.0 35.1 34.7 30.8 31.7
Selling, general and
administrative expenses...... 20.4 20.2 18.0 21.7 19.4 15.6 19.8
Income from operations......... 12.9 10.4 11.0(1) 10.5 13.3 13.0 9.5(2)
Net income..................... 12.4 4.3 5.3(1) 6.8 6.5 7.2 5.9(2)
</TABLE>
- -------------------------
(1) Effective on the date of the Company's initial public offering of Common
Stock in October, 1996, stock options granted to certain officers and
employees were accelerated resulting in a one-time non-cash expense of
$653,000.
(2) Decrease is primarily the result of ICS's operating loss incurred during the
six months ended April 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net Revenues. Net revenues increased from approximately $27.1 million in
the six months ended June 30, 1996 to approximately $53.7 million in the
comparable 1997 period, an increase of $26.6 million or 98.1%. The approximate
$26.6 million increase includes approximately $19.8 million of revenues related
to businesses acquired since July, 1996. Excluding the results of subsidiaries
acquired since July, 1996, revenues increased approximately $6.8 million
primarily related to growth in the Company's business communications and records
management services of $5.8 million and $600,000, respectively.
Gross Profit. Gross profit increased from approximately $9.4 million in the
six months ended June 30, 1996 to approximately $16.5 million in the comparable
1997 period, an increase of $7.1 million or 75.8%. The increase is primarily due
to an increase in net revenues, partially offset by lower gross profit margins
for certain businesses acquired since July, 1996 and the Company's product mix.
Gross profit as a percentage of net revenues was 30.8% for the six months ended
June 30, 1997 versus 34.7% for the comparable period of 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from approximately $5.3 million for the six
months ended June 30, 1996 to approximately $8.4 million in the comparable 1997
period, an increase of $3.1 million or 59.2%. The increase is primarily
attributable to businesses acquired since July, 1996. Selling, general and
administrative expenses as a percentage of net revenues for the six months ended
June 30, 1997 decreased to 15.6% from 19.4% for the 1996 comparable period. The
decrease in selling, general and administrative expenses as a percentage of net
revenues primarily resulted from an increase in net revenues without a
proportionate increase in expenses.
Amortization of Intangibles. Amortization of intangibles increased from
approximately $380,000 for the six months ended June 30, 1996 to approximately
$1.0 million in the comparable 1997 period, an increase of $662,000 or 174.2%.
The increase is primarily due to the amortization of goodwill recorded as a
result of businesses acquired since July, 1996.
22
<PAGE> 24
Interest Expense. Interest expense decreased from approximately $850,000
for the six months ended June 30, 1996 to approximately $740,000 in the
comparable 1997 period, a decrease of $110,000 or 12.9%. The decrease was
primarily due to a decrease in average debt outstanding during 1997 compared to
the comparable period of 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Net Revenues. From 1995 to 1996, net revenues increased from approximately
$46.6 million to approximately $69.9 million, an increase of $23.3 million or
50.0%. The $23.3 million increase in net revenues includes approximately $14.8
million of net revenues related to businesses acquired during 1996 and
approximately $8.5 million principally due to sales growth in the Company's
existing businesses. The breakdown of the $8.5 million in sales growth from
existing businesses and the percentage period over period growth were as
follows: business communications, $5.0 million (71.0%); digital imaging, $2.2
million (53.0%) and collection letter processing, $1.3 million (24.0%).
Gross Profit. From 1995 to 1996, gross profit increased from approximately
$15.4 million to approximately $22.4 million, an increase of approximately $7.0
million or 45.5%. The increase was primarily due to an increase in net revenues,
partially offset by lower gross profit margins for businesses acquired in 1996.
Gross profit as a percentage of net revenues was 32.0% for the year ended
December 31, 1996 versus 33.0% in 1995.
Selling, General and Administrative Expenses. From 1995 to 1996, selling,
general and administrative expenses increased from approximately $9.4 million to
approximately $12.6 million, an increase of approximately $3.2 million or 34.0%.
Approximately $2.4 million of the increase was attributable to businesses
acquired during 1996. Approximately $400,000 was due to an increase in
administrative expenses primarily resulting from the hiring of several key
executives in late 1995 and in the first three quarters of 1996, and
approximately $500,000 was due to an increase in advertising, sales commissions
and other selling expenses, related to the higher sales volumes. Selling,
general and administrative expenses as a percentage of net revenues was 18.0% in
1996 versus 20.2% in 1995. The decrease in selling, general and administrative
expenses as a percentage of net revenues primarily resulted from increased
revenues without a proportionate increase in expenses.
Compensatory Stock Option Expenses. From 1995 to 1996, compensatory stock
option expense increased from approximately $308,000 to approximately $936,000,
an increase of approximately $628,000 or 204.0%. The provisions of certain stock
option agreements included the immediate vesting of those options on the
effective date of the Company's initial public offering of Common Stock.
Accordingly, the Company recorded a non-cash expense of $653,000 during the
fourth quarter of 1996 to record the compensation associated with the immediate
vesting of those stock options.
Amortization of Intangibles. From 1995 to 1996, amortization of intangibles
increased from approximately $817,000 to approximately $1.1 million, an increase
of approximately $283,000 or 34.6%. The increase was primarily due to
amortization of goodwill recorded as a result of businesses acquired during
1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Net Revenues. From 1994 to 1995, net revenues increased from approximately
$41.2 million to approximately $46.6 million, an increase of approximately $5.4
million or 13.1%. The increase resulted principally from growth in the Company's
collection letter processing, facilities management and document conversion
revenues of approximately $2.0 million, $1.2 million and $1.0 million,
respectively. In addition, the areas showing the largest percentage period over
period growth were collection letter processing (58.0%, from approximately $3.4
million to approximately $5.4 million), digital imaging (84.0%, from
approximately $1.0 million to approximately $1.9 million) and micrographics
(33.0%, from approximately $3.2 million to approximately $4.2 million). In
general, of the total revenue increase in 1995, approximately 60.0% was the
result of increases in sales to existing customers and approximately 40.0% of
the increase was due to sales to new customers.
23
<PAGE> 25
Gross Profit. From 1994 to 1995, gross profit increased from approximately
$14.0 million to approximately $15.4 million, an increase of approximately $1.4
million or 10.0%. Gross profit as a percentage of net revenues decreased from
33.8% in 1994 to 33.0% in 1995. The decrease in gross profit as a percentage of
net revenues primarily resulted from an increase of approximately $1.0 million
in the cost of paper and related products, partially offset by increased
operating efficiencies.
Selling, General and Administrative Expenses. From 1994 to 1995, selling,
general and administrative expenses increased from approximately $8.4 million to
approximately $9.4 million, an increase of approximately $1.0 million or 11.9%.
In connection with the 1995 Recapitalization, the Company recorded approximately
$275,000 in non-recurring professional services and other expenses. Also in
1995, several key executives were hired, including Mr. Monroe and a vice
president of operations, resulting in an increase of approximately $300,000 in
administrative expenses. As a percentage of net revenues, selling, general and
administrative expenses decreased from 20.4% in 1994 to 20.2% in 1995. The
decrease in selling, general and administrative expenses as a percentage of net
revenues primarily resulted from increased revenues without a proportionate
increase in expenses.
Amortization of Intangibles. From 1994 to 1995, amortization of intangible
assets increased from approximately $266,000 to $817,000. The increase primarily
resulted from the amortization of intangibles created as a result of the GTCR
Fund IV investment and the 1995 Recapitalization. See "The Company" and "Certain
Relationships and Related Transactions."
Interest Expense. From 1994 to 1995, interest expense increased from
$185,000 to approximately $1.8 million. The increase in interest expense
primarily resulted from additional interest on borrowings incurred as part of
the 1995 Recapitalization and growth in the Company's business. See "The
Company" and "Certain Relationships and Related Transactions."
SELECTED QUARTERLY INFORMATION
The following tables set forth certain unaudited quarterly financial data
of the Company for each of the four fiscal quarters in 1995 and 1996, and the
first and second fiscal quarters in 1997. The information for each of these
quarters is prepared on the same basis as the consolidated financial statements
of the Company and related notes included elsewhere in this Prospectus and
include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to fairly present the data for such periods.
The information in the following tables is not necessarily indicative of future
results. See "Risk Factors -- Effect of Potential Fluctuations in Quarterly
Operating Results; Seasonality." The tables should be read in conjunction with
"Selected Consolidated
24
<PAGE> 26
Financial Data," the consolidated financial statements of the Company and the
related notes and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(Unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues...................... $11,764 $11,931 $11,525 $11,385 $13,005 $14,084 $20,659 $22,189
Cost of revenues.................. 7,588 7,729 7,927 7,983 8,659 9,037 14,754 15,137
Gross profit...................... 4,176 4,202 3,598 3,402 4,346 5,047 5,905 7,052
Selling, general and
administrative expenses......... 2,375 2,220 2,205 2,606 2,497 2,759 3,482 3,890
Income from operations............ 1,597 1,779 1,189 282 1,593 2,004 1,937 2,131
<CAPTION>
QUARTER ENDED
-------------------
MAR. 31, JUNE 30,
1997 1997
-------- --------
(Unaudited, in thousands)
<S> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues...................... $26,236 $27,422
Cost of revenues.................. 18,147 19,000
Gross profit...................... 8,089 8,422
Selling, general and
administrative expenses......... 4,315 4,080
Income from operations............ 3,240 3,726
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA AS A
PERCENTAGE OF NET REVENUES:
Net revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................. 64.5 64.8 68.8 70.1 66.6 64.2 71.4 68.2
Gross profit...................... 35.5 35.2 31.2 29.9 33.4 35.8 28.6 31.8
Selling, general and
administrative expenses......... 20.2 18.6 19.1 22.9 19.2 19.6 16.9 17.5
Income from operations............ 13.6 14.9 10.3 2.5 12.2 14.2 9.4 9.6
<CAPTION>
QUARTER ENDED
-------------------
MAR. 31, JUNE 30,
1997 1997
-------- --------
(Unaudited)
<S> <C> <C>
STATEMENT OF INCOME DATA AS A
PERCENTAGE OF NET REVENUES:
Net revenues...................... 100.0% 100.0%
Cost of revenues.................. 69.2 69.3
Gross profit...................... 30.8 30.7
Selling, general and
administrative expenses......... 16.4 14.9
Income from operations............ 12.3 13.6
</TABLE>
Revenues from the Company's services are subject to quarterly variations.
Net revenues can vary from period to period due to the effect of the timing of
specific projects. Quarterly results may also vary as a result of the timing of
acquisitions, if any, and the timing and magnitude of costs related to such
acquisitions. See "Risk Factors -- Effect of Potential Fluctuations in Quarterly
Operating Results; Seasonality" and "-- Fluctuations in Paper Prices."
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations and acquisitions through a
combination of cash flow from operations, bank borrowings and the issuance of
shares of Common Stock.
OPERATING ACTIVITIES
Cash used in operating activities was $2.1 million for the year ended
December 31, 1996 compared to cash provided by operating activities of $1.3
million in 1995 and $5.7 million in 1994. The increase in operating cash flows
in 1996 was primarily due to an increase in net income and an increase in
customer deposits partially offset by an increase in accounts receivable and
prepaid expenses. The decrease in operating cash flows from 1994 to 1995 was
primarily due to lower net income and higher accounts receivable.
Net cash provided by operating activities totaled $1.2 million for the six
months ended June 30, 1997 compared to $2.4 million for the six months ended
June 30, 1996, representing a decrease of $1.2 million. The decrease in
operating cash flow in 1997 was primarily due to lower accrued expenses and
other liabilities, which more than offset the increase in net income.
INVESTING
Cash flows used in investing activities totaled $1.8 million, $1.8 million
and $21.7 million for the years ended December 31, 1994, 1995 and 1996,
respectively, and has primarily been used to fund payments for the net assets of
acquired businesses and investments in capital equipment to improve the
Company's reprographic capability and capacity. Cash used to acquire businesses
was $1.0 million, $1.4 million and $17.1 million for the years ended December
31, 1994, 1995 and 1996, respectively. Cash used to invest in capital equipment
totaled $4.6 million in 1996, compared to $800,000 and $1.1 million in 1994 and
1995, respectively. The 1996 and 1997 investment in capital equipment includes
approximately
25
<PAGE> 27
$1.3 million and $1.5 million, respectively, of previously leased copiers that
were purchased during the fourth quarter of 1996 and the first quarter of 1997.
Cash flows provided by financing activities largely consisted of proceeds
from the Company's initial public offering of Common Stock in October, 1996,
partially offset by repayments of long-term debt and payments to redeem shares
of the Company's Common Stock during 1996. Net proceeds from the issuance of
common stock totaled approximately $53.0 million for the year ended December 31,
1996, after deducting underwriting discounts and other offering expenses. The
net proceeds from the Company's initial public offering of Common Stock were
primarily used to redeem 692,047 shares of Common Stock which were held by the
Company's largest shareholder and to repay amounts which were then outstanding
under the Company's Credit Agreement.
CREDIT AGREEMENT AND BORROWINGS
On January 17, 1995, Lason and First Union National Bank entered into a
Credit Agreement, pursuant to which the Bank provided for an aggregate of $15.0
million of term loans payable in 26 quarterly installments ending June 30, 2001
and a $10.0 million revolving credit facility, subject to a borrowing base
limitation, expiring on June 30, 2001. In July, 1996, the Credit Agreement was
amended to include an additional $10.0 million acquisition credit facility,
expiring on the earlier of June 30, 2001 or an initial public offering by the
Company. In addition, in August, 1996, the Credit Agreement was amended to
provide for up to an additional $8.5 million of interim term loans, payable upon
the earlier of March 31, 1997 or an initial public offering by the Company. In
August, 1996, the Credit Agreement was further amended increasing the then
existing $10.0 million revolving credit facility to $13.0 million.
On February 21, 1997, the Credit Agreement was amended and restated to
provide revolving credit loans in the initial amount of $40.0 million, which was
increased to $60.0 million on July 21, 1997 and to $80.0 million on August 1,
1997. The increased borrowing capacity will be used to finance additional
acquisitions of businesses, working capital and capital expenditures and for
other corporate purposes. Borrowings, if any, under the Credit Agreement will be
collateralized by substantially all of Lason's assets. Lason will not be
required to make principal payments prior to 2001, the maturity of the loan.
Interest on amounts outstanding will be calculated based on interest rates
determined at the time of borrowing. Borrowings will bear interest at rates
ranging from a base percentage rate plus a maximum of 1.25% (a weighted average
rate of 9.0% as of June 30, 1997) to LIBOR plus a maximum of 2.25% (a weighted
average rate of 6.94% as of June 30, 1997), depending on the Company's leverage
ratio. The Credit Agreement contains restrictions on the acquisition of stock or
assets, disposal of assets, incurrence of other liabilities, minimum
requirements for cash flow and certain financial ratios. As of July 31, 1997,
the Company had approximately $46.9 million outstanding under the Credit
Agreement. See "Description of Credit Agreement," Pro Forma Financial
Information and Note 6 to the Notes to the Consolidated Financial Statements.
Upon the completion of the Offering, the Company plans to repay all of its
outstanding indebtedness under its Credit Agreement using most of the net
proceeds from the Offering.
CAPITAL EXPENDITURES
The Company continues to invest in capital equipment, principally to
improve its reprographic capability and capacity. The Company expended
approximately $800,000, $1.1 million, $4.6 million and $3.8 million for capital
equipment for the years ended December 31, 1994, 1995, and 1996, and the six
months ended June 30, 1997, respectively. At June 30, 1997, the Company had no
commitments to purchase equipment. The Company expects to make additional
capital expenditures of up to approximately $1.0 million in 1997, none of which
is pursuant to a firm commitment. Capital expenditures will generally be funded
from operations.
RECENT ACQUISITIONS
The Company's liquidity and capital resources have been significantly
affected by acquisitions and, given the Company's acquisition strategy, may be
significantly affected for the foreseeable future.
26
<PAGE> 28
To capitalize on the information management industry consolidation opportunity,
the Company has adopted a more active acquisition strategy. See "Recent
Acquisitions" and "Business -- Acquisition Strategy." Since June, 1995, the
Company has acquired 15 companies. The Company has to date financed its
acquisitions with borrowings under the Credit Agreement, with shares of its
capital stock and with cash from operations. Borrowings for acquisitions during
1996 and the first six months of 1997 totaled $17.1 million and $20.2 million,
respectively. In addition, the Company borrowed approximately $18.9 million in
July, 1997 to fund the ICS Acquisition. See "Recent Acquisitions."
FUTURE CAPITAL NEEDS
The Company's ability to obtain cash adequate to fund its needs depends
generally on the results of its operations and the availability of financing.
Management believes that cash flow from operations, in conjunction with
borrowings from existing and possible future credit facilities and the net
proceeds from the Offering, will be sufficient to meet debt service
requirements, make possible future acquisitions and fund future capital
expenditures. However, there can be no assurance in this regard, nor any
assurance that the terms available for any future financing, if required, would
be favorable to the Company.
INFLATION
Certain of the Company's expenses, such as wages and benefits, occupancy
costs and equipment repair and replacement, are subject to normal inflation.
Supplies, such as paper and related products, can be subject to significant
price fluctuations. Although the Company to date has been able to offset any
such cost increases through increased operating efficiencies, there can be no
assurance that the Company will be able to offset any future inflationary cost
increases through similar efficiencies or increased charges for its products and
services.
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," and "expect" and similar expressions as they relate to
the Company or its management are intended to identify such forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors."
OVERVIEW
Lason provides integrated outsourcing services for records management,
document management and business communications. The investments the Company has
made in imaging and communications technology, personnel, equipment and systems
over the past decade have given it the capabilities and expertise necessary to
meet the growing and increasingly complex information management requirements of
its customers. The Company primarily serves customers in the manufacturing,
healthcare, financial services and professional services industries. The
Company's core competencies in input processing, data management and output
processing enable it to provide a broad range of services across a wide range of
media types and allow customers to fulfill their information management
outsourcing needs with a single vendor. The Company's strategy has been to offer
a wide range of services to its customers and to use technologically advanced
solutions to expand its service offerings. The Company's net revenues have grown
from $9.9 million for the year ended December 31, 1991 to $69.9 million for the
year ended December 31, 1996, representing a compounded annual growth rate of
approximately 47.8% over the last five years. The Company had net revenues of
$53.7 million for the six months ended June 30, 1997. Today, the Company employs
approximately 1,700 people, has operations in 15 states and provides services to
over 2,900 customers at 26 multi-functional imaging centers and at over 40
facility management sites located on customers' premises.
Since its initial public offering of Common Stock in October, 1996, the
Company has:
- Acquired seven information management companies which had aggregate 1996
revenues of approximately $42.4 million;
- Achieved significant internal revenue growth, excluding the results of
subsidiaries acquired after June 30, 1996, generating net revenues in the
quarter ended June 30, 1997 that were 27.0% higher than those achieved in
the quarter ended June 30, 1996;
- Increased the geographic presence of its operations from eight states to
15 states;
- Continued the development of its branding strategy by increasing its
emphasis on products such as Visions computer output to laser disk
(COLD), Lason Document Express (print on demand), Priority Gram and
PROXYGRAM; and
- Increased the availability under its credit agreement to $80.0 million.
The information management industry is highly fragmented, consisting of a
large number of small companies providing limited service offerings. Therefore,
an important element of the Company's growth strategy is to make selected
acquisitions of companies with complementary technologies or customer bases to
consolidate its position as a provider of complete information management
services. Since June, 1995, the Company has acquired 15 companies. In
particular, since its initial public offering of Common Stock in October, 1996,
the Company has completed the acquisition of seven information management
companies, providing a range of services in 12 states, seven of which represent
new territory for the Company. See "Recent Acquisitions." The Company will
continue to seek and evaluate acquisition opportunities.
Lason's information management service offerings generally can be divided
into the areas of records management, document management and business
communications. The Company's records management services include the scanning
and conversion of documents from a variety of input media
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to a digital format. The Company also provides traditional microfilm and
microfiche services. The Company's newest records management service offering,
Visions computer output to laser disk (COLD), provides laser disk storage and
retrieval of records. The Company's document management services include
high-volume, quick turn-around optical and digital printing, as well as facility
management operations at customer sites. The Company's newest document
management service offering, Lason Document Express (print on demand), allows
documents to be stored digitally, accessed on-line and printed and distributed
locally or centrally, depending on end-user requirements. The Company's business
communications services provide customers with rapid, reliable and cost-
effective methods for making large-scale distributions by fax, electronic
distribution, print and mail of statements, reports, proxy solicitations and
letters to consumers and other target audiences in response to specific events.
The Company's database management system offers list manipulation, sorting
services and information search solutions so that customers' data can be
customized and updated for specific target market mailings. The Company also
provides customized processing services for over 400 collection agencies located
throughout the United States.
Lason believes that companies will continue to increase their use of
outsourced information management services. To manage efficiently complex or
large volumes of documents, a customer would be required to make a significant
investment in equipment, processes and technology which may only be fully
utilized occasionally by a single user. Through outsourcing, companies can avoid
this capital investment, as well as the risks of obsolescence that arise from
rapid changes in document management technology. As companies seek to focus on
their core competencies and maximize asset utilization, they are increasingly
turning to outside parties who have the technological expertise, service focus,
rapid turn-around capacity and full range of capabilities necessary to manage
efficiently complex or large volumes of documents. In addition, the Company
believes that customers will seek a single vendor capable of furnishing all or
many of their document management needs rather than relying on multiple vendors
with varying areas of expertise.
MARKET AND INDUSTRY OVERVIEW
The Company believes the market for its services is growing due to a
variety of factors including: (i) continuing advancements in computer,
networking, facsimile, printing and other technologies which have greatly
facilitated the production and distribution of documents; (ii) government
regulations that require lengthy document retention periods and rapid
accessibility for many types of records; (iii) increased customer expectations
of low cost access to records on short notice at different locations; and (iv)
an increasingly litigious society, necessitating access to relevant documents
and records for extended periods. In addition, the Company's customer base of
manufacturing firms, healthcare institutions, professional service firms and
financial institutions routinely generate large volumes of documents that
require efficient processing, distribution, storage and retrieval. The Company
believes that these customer segments have increased, and will continue to
increase, their outsourcing of document management services in order to maintain
a focus on core operating competencies and revenue generating activities, reduce
fixed costs, including labor and equipment costs, and gain access to new
technologies without incurring the expense and risk of near-term obsolescence of
such technologies.
The Company also believes that the market for its services will expand as
technology evolves for the scanning and conversion of paper or microfilm
documents into digital formats. Electronic imaging is generally used because of
the storage media's high speed of retrieval, its multiple indexing and text
search formatting capabilities, its ability to be used to distribute electronic
documents to multiple locations and, once input, its lower cost per retrieval.
The Company believes that many of the small businesses with which it
competes lack the capital for expansion, cannot keep abreast of rapidly changing
technologies, lack the ability to manage large, complex projects, lack effective
marketing programs and are unable to meet the needs of large, geographically
dispersed customers. As a result of these barriers to continued growth, the
Company believes that many owners of such competing firms will be receptive to
being acquired by the
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Company as a means of providing the owners of such companies with liquidity. In
addition, to the extent the Company finances all or a portion of the purchase
price by issuing shares of Common Stock, the Company will also be providing such
owners with an opportunity to participate in any potential growth of the
Company.
BUSINESS STRATEGY
The Company's goal is to become a national, single source provider of
document management, records management and business communication services for
its customers. To achieve this goal, the Company intends to implement a focused
business strategy based on the following elements:
Provide a broad range of services that will allow both existing and
new customers to secure all of their needed information management services
from one source. The Company's broad range of services and its significant
investment in technology and capacity enable it to compete successfully for
large, complex projects for large customers because it has capabilities
that its competitors lack. The Company intends to focus on obtaining
additional business by offering its full service capabilities to firms now
being serviced by several document management service companies with a
limited range of service offerings thereby enabling customers to
consolidate various vendor relationships into a single relationship with
the Company.
Implement a comprehensive marketing program to facilitate the
cross-selling of additional services to customers who are now purchasing
only a limited number of services and to develop national brand recognition
of the quality and scope of Lason's services. The Company has leveraged its
existing customer relationships to sell its other information management
services. For example, the Company has been able to expand customer
relationships initially developed through its facilities management
services into providing a full range of information management services.
Moreover, the successful development of a national brand image for Lason
will enhance the sales potential of acquired companies, thus increasing the
benefits of integrating these acquired companies into the Lason system and
strengthening Lason's attractiveness as a potential acquiror.
Make selective acquisitions to further broaden its geographic reach,
customer base and technological capabilities and to attain economies of
scale in purchasing, facilities utilization and management. The Company's
strategy is to serve as a consolidator of the highly fragmented information
management services industry. Since its founding in 1985, the Company has
acquired several companies which have expanded its services offerings and
increased its technological capabilities. Since June, 1995, the Company has
acquired 15 companies involved in records management, duplication,
conversion services, facilities management, item processing and item
research, micrographics, litigation support document management services,
electronic sorting of mass mailings, proxy solicitations, and mail creation
and distribution. The Company intends to acquire additional companies with
attractive, complementary customer bases or technologies. The Company's
goal is to increase the utilization of its assets and to cross-sell
additional services through acquired companies. See "Risk Factors -- Risks
of Acquisitions and Failure to Integrate Acquired Businesses" and "-- Risk
of Inadequate Financing for Future Acquisitions," "Recent Acquisitions" and
"Business -- Acquisition Strategy."
Develop additional high value-added applications, such as Lason
Document Express (print on demand), digital imaging services and Visions
computer output to laser disk (COLD), within its core services
offerings. The Company has developed a variety of technologically advanced
products and services that provide creative solutions to difficult customer
problems. Examples of these high value-added applications are Lason
Document Express, an electronic print on demand system that allows
documents to be stored digitally, accessed on-line and printed and
distributed locally or centrally depending on end-user requirements;
digital imaging services, which involve the conversion of paper or film
documents to digital information through optical scanners and Visions
computer output to laser disk (COLD), which writes computer output files to
an optical disk.
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Develop scalable applications utilizing an open architecture and
modular approach that will enable the Company to service the unique needs
of various customers across a broad range of volume requirements. To meet
the diverse needs of its current and potential customers, the Company
utilizes an open architecture and modular approach in developing its
applications and incorporates the equipment of a variety of hardware and
software manufacturers. The modular aspects of the Company's technology and
approach enable it to combine different portions of its document management
technologies and capacities in numerous configurations to meet the diverse
and changing document management needs of its customers. In addition, the
scalable aspects of the Company's technology permit the Company to process
both large and small volumes of documents in a cost-effective manner.
Scalability of its applications is also important with respect to acquired
companies. Because Lason's technology is applicable to both large and small
production volumes, acquired companies will be able to apply and benefit
immediately from Lason's technologies regardless of their current
production volumes and will be able to benefit in the future as they are
able to obtain customers with diverse volume needs.
ACQUISITION STRATEGY
The Company believes that it can serve as a consolidator of the highly
fragmented information management services industry and that it can achieve
economies of scale through volume purchasing, enhanced facility utilization and
consolidation of support staff and infrastructure. Moreover, the Company
believes that it can enhance revenues by cross-selling its full range of
services to the customer bases of these acquired companies and that it can
expand its geographic presence across the United States by acquiring information
management services providers in new geographic markets. The Company's long-term
strategy is to establish a series of regional hubs each capable of providing the
full range of services now provided by the Company's Detroit area facilities.
The Company was founded in 1985 as a result of a management buyout of the
direct mail division of McKesson Corporation's 3PM subsidiary. Since then, the
Company has acquired several companies which have expanded the Company's service
offerings and increased its technological capabilities. As a result, the Company
believes it has developed a formula for successfully integrating acquired
companies into its financial, purchasing and operating systems. Since June,
1995, the Company has acquired 15 companies. See "Recent Acquisitions."
Since its initial public offering of Common Stock in October, 1996, the
Company has acquired seven companies with aggregate revenues of approximately
$42.4 million for the most recent fiscal year prior to acquisition. The largest
of these acquisitions, ICS, had revenues of over $20.0 million in 1996. ICS
offers both micrographic and digital information services, including source
document filming and film processing, film microfiche and paper scanning, media
conversion, and data entry and indexing, as well as facilities management. ICS
is headquartered in Arlington Heights, Illinois, and has locations in eight
states, over 800 customers and approximately 270 employees.
In the future, the Company's acquisition strategy will target companies
that provide the opportunity for continued growth in its core service areas. The
Company's acquisition strategy will focus on companies (i) that have proven
operating track records, solid management teams and strong customer franchises
that could benefit from Lason's technology and broad product and service
offerings; (ii) that have an existing presence in the Company's core
competencies to build economies of scale through volume purchasing and
facilities utilization; and (iii) that expand the Company's customer base and
thereby increase its cross-selling opportunities. In addition, where
appropriate, the Company intends to transform certain of its acquired facilities
into regional hubs to market the Company's services in various major North
American business markets.
PRODUCTS AND SERVICES
The Company's strategy is to offer a broad range of information management
services across a wide variety of media types and formats, thereby permitting
customers to consolidate their information
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management needs with a single vendor. This broad range of information
management services and capabilities enables the Company to provide integrated
solutions to its customers' complex document management needs. Although there is
significant overlap, the Company's service offerings generally can be divided
into the areas of records management, document management and business
communications.
Records Management
Companies are increasingly utilizing electronic document storage and
retrieval (DSR) systems to manage their business records as the cost of such
technology declines and the benefits become more apparent. The Company provides
electronic document conversion services to convert paper documents to a digital
format both at the time of initial implementation of a DSR program and on an
ongoing basis. The Company possesses the capability to convert documents from a
wide variety of input media or formats to a wide variety of output media or
formats, including traditional micrographic conversion services. Lason also
offers DSR system services that a customer can use as an alternative to
developing and purchasing its own DSR system. The records management area
represented approximately 20.1%, 19.5% and 24.1% of the Company's net revenues
for the years ended December 31, 1994, 1995 and 1996, respectively. Services
generally included in this area are:
- Electronic Document Storage and Retrieval.
A company implementing a document storage and retrieval program
frequently faces the challenge of converting hundreds of thousands to
millions of paper and/or microfilm documents to digital format. These paper
and microfilm documents can be converted to indexed digital images or,
using optical character recognition technology, into electronically
recognizable text. Lason's investment in advanced document scanners and
imaging software combined with its experience in scanning and converting
documents typically enables the Company to perform this document conversion
process more efficiently and in significantly less time than a potential
customer. The Company's technical support staff is skilled at assisting
customers in developing customized indexing systems and selecting optimal
file formats and naming conventions.
- Document Conversion Services
The Company's experience and capabilities enable it to provide a broad
range of document conversion services with respect to a wide variety of
input and output formats, including digital, film, CD-ROM, optical disk,
magnetic disk, magnetic tape, aperture card and hardcopy, including
engineering drawings.
Electronic Conversion Services. The Company also performs traditional
micrographic conversions including the conversion of paper documents into
microfilm images, film processing and computer-based indexing and
formatting of microfilm images. Micrographic services often are selected as
a cost competitive technology to paper-based systems in order to reduce the
physical size of stored records, for their long term (typically over 100
years) archival capabilities and as an intermediate step in certain imaging
or reprographic applications.
Micrographic Conversion Services. The Company has developed a flexible
electronic DSR system that enables Lason's customers to obtain the benefits
of electronic document storage and retrieval without developing and
purchasing their own DSR system. Electronic storage of documents enables
customers to immediately access large volumes of documents that would be
impossible using conventional filing systems. DSR systems also provide
rapid distribution of archived information to multiple destinations and
remove the logistical burden and cost of archiving paper documents. Lason's
DSR system enables it to store and index a customer's digital documents
whether the document was converted to digital format or was originally
produced in digital format. The system used to index and store documents
produced by computers on a laser disk is commonly referred to as a computer
output to laser disk (COLD) system. A COLD system is particularly useful
for companies which need to rapidly locate documents produced on
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disparate computer systems and programs, such as are found in very large
companies with multiple independently functioning departments or companies
with a high level of customer service activity. Because stored documents
can be indexed by several criteria, a customer can use simple but exacting
computer search techniques to rapidly access individual documents or groups
of documents. For example, one customer utilizes the Company's DSR system
to enable its employees to retrieve particular invoices from the millions
of invoices the customer has stored on the system. Traditionally, such
invoices were written to microfilm and stored in file cabinets. Without a
DSR system, accessing and retrieving such invoices was a time consuming
manual operation. An additional key feature of the Lason DSR system is that
it permits total storage capacity to be incrementally increased through the
addition of modular storage units.
The Company's capability to convert documents from a wide variety of input
media or formats to a wide variety of output media or formats and its electronic
document storage and retrieval capabilities position the Company to be a single
source provider of records management services for potential customers. The
Company plans to continue investing in and developing the capabilities and
flexibility of its DSR system in an effort to make it increasingly attractive to
potential customers to outsource their records management to the Company instead
of developing and purchasing their own DSR system.
Document Management
The Company provides a broad range of services that enable it to meet its
customers' document management needs. The Company offers on-site facilities
management services to manage those document management services which are most
efficiently provided at a customer's facility. Higher volume and/or more complex
document management services are performed at the Company's centralized imaging
centers. The document management area represented approximately 38.3%, 36.9%,
and 38.4% of the Company's net revenues for the years ended December 31, 1994,
1995 and 1996, respectively. Services generally included in this area are:
- Print On Demand Solutions
The Lason Document Express (print on demand) system enables customers
to cost-effectively produce and distribute large volumes of a document on
24-hour notice. The customer supplies the Company with either an electronic
copy of a document or a hard copy of the document, which the Company
converts to an electronic copy, which is then stored on the Lason Document
Express system. The customer can then use its own computer system to place
a print order, including production amount and distribution method and
location, and the Company completes the print and distribution process.
The Lason Document Express system offers an alternative to traditional
printing methods for companies which produce documents that are subject to
frequent revision or unpredictable demand. Since conventional offset
printing requires large production runs to produce high quality documents
in a cost-effective manner, a company which utilizes offset printing to
print such documents incurs a high risk that it will find itself with a
costly inventory of outdated and useless documents. In addition, the
flexibility of the Lason Document Express system provides customers an
ability to increase the quality of their product offerings by enabling them
to make document enhancements (such as corrections or improvements to
product manuals) which would otherwise be prohibitively expensive. The
Company believes that the demand for print on demand services by
manufacturers and financial and insurance institutions will continue to
increase as technological advances create ever-shorter product life cycles
and ever-increasing product variation.
Customers frequently use the Lason Document Express system to print
and distribute documents such as product manuals, training manuals,
technical documentation and employee benefit books. For example, a customer
which operates computer training centers nationwide uses the Lason Document
Express system to print training manuals for its classes. When a training
class is scheduled, the customer places an order for the manuals to be used
in the class the day before
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the class begins, thereby ensuring that the number of manuals printed
matches closely the number of students enrolled in the class. Another
customer, which manufactures robotic systems, uses the Lason Document
Express system to produce the customized product manuals and technical
documentation which accompany each of its customized robotics applications.
- High Volume Quick Turn Reprographics
The Company through its imaging centers provides high volume, quick
turn reprographics services 24 hours a day, seven days a week. The Company
currently processes an average of six million pages per month. In addition,
the Company possesses the capability to handle reprographic projects
involving microfiche and engineering drawings, including conversion
services. For example, each day the Company receives on average
approximately 2,500 engineering drawings from a manufacturing customer that
the Company reproduces using various large format and small format document
duplicators. The resulting images are then distributed to approximately 50
of the customer's suppliers. These capabilities are important enablers of
other services provided by the Company, such as the Lason Document Express
(print on demand) service and performing overnight and peak demand
reprographics services for the Company's on-site facilities management
customers.
- On-Site Facilities Management
The Company can equip, staff and manage most aspects of a customer's
document management needs at a customer's facility. In addition to copying
and printing, Lason employees perform file room maintenance, engineering
drawing and record retention, decentralized copier management, facility
mail and courier services and address list maintenance. Typically, the
Company will operate its own satellite production center (called a Lason
Servicenter) on the customer's premises. By working in partnership with a
customer at the customer's facility, the Company and the customer
frequently identify additional ways the Company can help meet the
customer's document management needs both on-site and at the Company's
centralized imaging centers. In one instance, a manufacturing customer
originally engaged the Company solely to provide equipment and personnel to
manage its on-site photocopying needs at one of its facilities. Today, the
Company provides that customer with on-site supply stock, facility mail and
courier services and also provides that customer with electronic document
conversion of invoices, printing of training and product manuals using the
Document Express system, large volume mailings of promotional and product
information to customers, large format color plotting and offset printing
of forms at Lason's imaging centers. The Company established its first
Lason Servicenter in 1992 and currently provides on-site services at over
40 facilities in Michigan, Illinois, Ohio and Tennessee.
- Digital Graphics
A staff of computer graphics design and printing professionals use
advanced computer technology to provide digital graphics services,
including design and printing of high resolution full color graphics,
electronic publishing and production of camera-ready art for offset
printing. Applications range from document covers and graphics to courtroom
exhibits and promotional signage of any size. Digital graphics services are
an important component of the Company's single source strategy and are an
important enabler of other services provided by the Company.
The Company's experience in working with customers at their facilities to
manage all aspects of the customers' on-site document management needs and its
capability to fulfill almost any document copying, printing or distribution need
at its imaging centers position the Company to be a single source provider of
document management services for its current and potential customers. The
Company's continuing investment in and development of advanced high-speed
document production hardware and software and three-shift operation of its
imaging centers enables the Company to produce high quality documents while
leveraging economies of scale and 24-hour utilization of equipment. The Company
plans to continue to develop and market products such as the Lason Document
Express
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system which make it easier for customers to access and use the Company's
document printing and distribution capabilities and the economies of scale the
Company possesses at its imaging centers.
Business Communications
The Company offers a variety of personalized direct response services to
its customers. These services are characterized by quick turn-around, large
volume and highly personalized business correspondence. The business
communications area represented approximately 41.6%, 43.6% and 37.5% of the
Company's net revenues for the years ended December 31, 1994, 1995 and 1996,
respectively. Services generally included in this area are:
- Digital Communications Services
Lason's customers benefit from outsourcing their high volume
communications needs to the Company through improved turn-around, reduced
production constraints and the flexibility and benefits provided by using
the latest software and mail handling processes.
Priority Gram. The Company's Priority Gram is a nationally recognized
product which numerous large volume mailers have found to be an effective
mode of communication in a variety of applications. Among these customers
are firms involved in debt collection. The Company works with 15 leading
software vendors to provide credit institutions with an effective system of
debt collection communications. Over 500 customers utilize the process, and
over 20 million letters, including collection letters, are generated each
month.
PROXYGRAM. The Company's market-leading PROXYGRAM serves the time
sensitive proxy solicitation sector of the financial services market.
PROXYGRAMs solicit, collect, report and validate shareholders' proxy votes
while providing flexibility to shareholders and cost savings and greater
shareholder participation to customers. Outgoing messages to shareholders
contain instructions on how to vote shares by a toll-free telephone call
using a confidential identification number to assure shareholder
verification and validity.
Fax, Electronic Distribution, Print and Mail. The Company develops
customized programs for its customers to support event-driven response
requirements, such as product recall and credit card solicitation
campaigns. For example, the Company currently provides declination letter
and incomplete application letter processing with respect to credit card
applications for a leading credit card company. Such letters can be
generated on a daily basis as the status of the customer's application file
requires. By combining volumes of mail from all of its customers and
presorting such mail to United States Postal Service specifications, the
Company is able to generate significant postal discounts for its customers.
Over 95% of Lason's mail is sorted to the lowest postal discount category
available through the United States Postal Service. Each customer enjoys
the maximum postal discounts allowed for First Class Mail regardless of the
volume of mail sent by such customer. The Company can incorporate these
savings in quotes to customers on its services. Furthermore, over 90% of
all mail processed in the Company's mailing centers is directly produced by
Lason.
- Database Management Services
The Company's sophisticated database management systems support data
manipulation, item sorting and information search solutions so that customers'
lists can be customized and updated for specific target markets and targeted
mailings. These database capabilities save customers money while increasing
response rates.
The Company's experience and capabilities in letter creation and handling
communications across a broad array of media position it for continued
leadership in business communications. The Company plans to make additional
investments in and develop such capabilities in the future as well as identify
new markets which demand these specialized services.
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Integrated Solutions
The Company's wide range of document management, conversion and
distribution capabilities and an experienced staff of image and information
management professionals enable it to provide integrated solutions to customers'
complex document management needs.
Many of the litigation support solutions provided by the Company are based
on both its electronic document conversion and its print on demand capabilities.
The rules of discovery permit each party involved in a law suit to request
documents gathered in support of the litigation by the other party. A large
manufacturer involved in hundreds of product liability litigations concerning
the same alleged product defect engaged the Company when it experienced
difficulty in meeting court-established deadlines for production of discovery
documents and in accurately producing the documents requested. In this case, the
customer possessed millions of pages of discoverable documents. The solution
provided by the Company was to convert each of the discovered documents (in
paper form) to digital images which were then indexed and stored on the Lason
Document Express system. When a litigant requests certain discovery documents
(in many cases, hundreds of thousands of pages at a time), the customer uses the
Lason Document Express system to place an on-line order to the Company to print
the desired documents and to distribute them to the requesting litigant.
Typically, the Company can fulfill each order by the next day. The Lason
Document Express system not only ensures that every page is properly printed,
but also provides such features as automatically printing identifying
information (such as Bates numbers) on each page, printing confidential
watermarks and automatically shrinking oversized documents to fit on
standard-sized pages.
The Company has used both its electronic document conversion and
high-volume, quick turn-around printing capabilities to provide solutions for
banks engaged in mortgage lending. When one of the nation's largest mortgage
lenders decided to convert from conventional to electronic storage, it
confronted the challenge of converting approximately 60,000 mortgage files, each
containing approximately 20 to 27 documents. The bank engaged the Company to
perform this electronic document conversion project. In ten weeks, the Company
converted approximately 60,000 mortgage loan files (or approximately five
million pages) to digital images that were stored on CD-ROM and indexed and
formatted for use on the bank's own DSR system. During the project, the bank
sold approximately 20,000 of the 60,000 mortgage loans. The loan files
representing the sold loans were randomly interspersed among the files which had
been or were about to be converted by the Company. To complete the mortgage sale
transaction, the bank needed hard copies of certain of the original mortgage
documents for each mortgage sold, typically five documents per loan file. The
Company was able to provide the bank with a more attractive solution than
manually retrieving and copying the necessary files by using the CD-ROM it had
created to identify the required documents and retrieve and transfer such
documents to a separate CD-ROM for delivery to the mortgage loan purchaser.
CUSTOMERS
The Company currently has approximately 2,900 customers primarily in the
manufacturing, healthcare, financial services and professional services
industries. The Company services accounts of all sizes, from small business and
professional groups to Fortune 100 companies. The Company's customers include
General Motors Corporation, Ford Motor Company, Trans Union Corporation,
Chrysler Corporation, International Business Machines Corp., First Chicago NBD,
Compuware, Colonial National Bank, Oakwood Hospital, Detroit Medical Center,
Sears, Roebuck and Co. and Cummins Engine Company, Inc.
Historically, a majority of the Company's revenues has been from the major
domestic automobile manufacturers. The three major domestic automobile
manufacturers accounted for approximately 71.1%, 65.0%, 56.5% and 41.8% of the
Company's consolidated net revenues for the years ended December 31, 1994, 1995
and 1996, and for the six months ended June 30, 1997, respectively. Other than
General Motors Corporation and Ford Motor Company, which accounted for
approximately 32.0% and 19.0% of the Company's consolidated net revenues,
respectively, no customer accounted for
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more than 10.0% of the Company's net revenues for the year ended December 31,
1996. On a pro forma basis, for the year ended December 31, 1996, and the six
months ended June 30, 1997, General Motors Corporation accounted for
approximately 19.9% and 18.2%, respectively, Ford Motor Company accounted for
approximately 11.8% and 14.2%, respectively, and Chrysler Corporation accounted
for approximately 3.7% and 2.2%, respectively, of the Company's consolidated net
revenues. See "Selected Consolidated Financial Information."
SALES AND MARKETING
The Company's sales efforts are handled primarily through its in-house
direct sales staff of approximately 60 employees located in 14 states.
Approximately 50 sales representatives concentrate on the sales of document and
records management services, and approximately 10 sales representatives
concentrate on sales of business communications services. In addition to its
direct sales force, the Company markets its products through the efforts of its
value-added-resellers, which include FileNet Corp., Zylab International, Inc.,
Macro Computer Products Inc. (MacroSoft) and Unisys Corp., and through certain
of its suppliers, including Canon Inc., Danka Business Systems PLC and Ameritech
Corp. The Company also employs full-time customer service representatives to
assist customers. Sales representatives and service representatives are assigned
to each major customer project.
Historically, the Company's sales representatives have focused their sales
and marketing efforts on a particular area of the Company's service offerings.
Although the Company intends to maintain sales representatives with application
specific expertise, the Company is in the process of integrating the Company's
sales and marketing efforts across service types and geographic regions. The
Company believes that an integrated sales force will enhance cross selling
opportunities within the Company's customer base. The Company's sales approach
emphasizes a high level of customer services, personal relationship development
and customer solution selling. The Company intends to maintain separate national
account managers for large customers, and sales and service personnel maintain
daily contact with major accounts and interact extensively with customer and
Company operations staff to address customer needs.
COMPETITION
The Company's businesses are highly competitive. A significant source of
competition is the in-house document handling capability of the Company's target
customer base. In addition, with respect to those services that are outsourced,
the Company competes with a variety of competitors, including large national or
multinational companies, which have greater financial resources than the
Company, and smaller regional or local companies. The Company's major
competitors, in addition to various regional competitors, include IKON Office
Solutions, Inc., Pitney Bowes Management Services, Inc. (a subsidiary of Pitney
Bowes, Inc.), Danka Business Systems PLC, Iron Mountain, Inc., Donnelley
Enterprise Solutions, Inc. and Xerox Business Services with respect to its
document management services; Dataplex Corp., F.Y.I. Incorporated and IKON
Office Solutions, Inc. with respect to its records management services; and
First Financial Management Corp. (First Image), Sun Guard Mailing Services and
Diversified Data & Communications with respect to its business communications
services.
The Company believes that the principal competitive factors in document
management services include quality and accuracy, reliability and security of
service, reputation, ease of use, customer support and service, customer segment
specific knowledge, speed, capacity and price.
PROPRIETARY RIGHTS AND PROCESSES
The Company regards the systems, information and know-how underlying its
services as proprietary and relies primarily on a combination of contracts,
trade secrets and confidentiality agreements to protect its proprietary rights.
The Company's business is not materially dependent on any patents. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to
37
<PAGE> 39
obtain and use information that the Company regards as proprietary, and policing
unauthorized use of the Company's proprietary information is difficult.
Litigation may be necessary for the Company to protect its proprietary
information and could result in substantial cost to, and diversion of efforts
by, the Company.
The Company does not believe that any of its proprietary rights infringe
the proprietary rights of third parties. Any infringement claims, whether with
or without merit, can be time consuming and expensive to defend or may require
the Company to enter into royalty or licensing agreements or cease the allegedly
infringing activities. The failure to obtain such royalty agreements, if
required, and the Company's involvement in such litigation could have a material
adverse effect on the Company's business, financial condition and results of
operations.
FACILITIES
As of July 31, 1997, the Company conducted operations through 35 leased
facilities in 15 states containing in the aggregate approximately 457,182 square
feet. The Company's principal facilities are summarized in the following table:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE USE
- --------------------------------------- -------------- ------------------------------------
<S> <C> <C>
Livonia, MI (Amrhein Street)........... 72,000 Business communications
Madison Heights, MI.................... 49,900 Document and records management
Troy, MI (Stephenson Highway).......... 47,050 Document and records management,
executive offices
Livonia, MI (Schoolcraft Road)......... 27,460 Business communications
Jacksonville, FL (Bayberry Road)....... 26,505 Document and records management
Detroit, MI (Larned Street)............ 20,000 Document and records management
Troy, MI (Allen Drive)................. 19,700 Document and records management
Arlington Heights, IL.................. 15,901 Document and records management
New York, NY........................... 10,450 Business communications
Ashland, VA............................ 10,000 Business communications
Tampa, FL.............................. 8,789 Document and records management
Cypress, CA............................ 8,640 Document and records management
Richmond, VA........................... 8,550 Document and records management
Rochester, NY.......................... 8,200 Document and records management
Mendota Heights, MN.................... 8,193 Document and records management
East Hartford, CT...................... 7,000 Document and records management
Medford, MA............................ 6,471 Document and records management
Norcross, GA........................... 5,737 Document and records management
Livonia, MI (Stark Road)............... 5,700 Item processing and item research
Chicago, IL............................ 5,200 Document and records management
St. Louis, MO.......................... 5,124 Document and records management
Miami, FL.............................. 5,000 Document and records management
</TABLE>
Leases vary in length remaining from month-to-month to 80 months and, in
some cases, include options to extend the lease term. The Schoolcraft Road
property in Livonia, Michigan is leased from an affiliate of the Company. See
"Certain Relationships and Related Transactions" and Note 10 to the Notes to the
Consolidated Financial Statements.
The Company believes that its success to date has been, and future results
of operations will be, dependent in large part upon its ability to provide
prompt and efficient services to its customers.
38
<PAGE> 40
Certain of the Company's operations are performed at a single location and are
dependent on continuous computer, electrical and telephone service. As a result,
any disruption of the Company's day-to-day operations could have a material
adverse effect upon the Company. The Company currently has business interruption
insurance intended to mitigate the impact of floods, fire, power outages or
similar disasters. In addition, the Company has redundant telephone lines and
rerouting capabilities to separate telephone exchanges to guard against the
possible temporary loss of phone service in connection with the servicing of
customers. The Company also has a back-up generator at its Livonia facilities to
serve as an alternative power supply in the event of any power outage.
Notwithstanding the foregoing, there can be no assurance that a fire, flood,
earthquake, power loss, phone service loss or other disaster affecting one or
more of the Company's facilities would not disable these functions. Any
significant damage to any such facility or other failure that causes significant
interruptions in the Company's operations may not be covered by insurance and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
REGULATION
The Company's customers involved in debt collection and certain of the
Company's services as used by those customers, such as collection letter
processing, are subject to various consumer protection laws, including the
Federal Fair Debt Collection Practices Act ("FDCPA"). In 1977, Congress enacted
the FDCPA to curtail abusive, deceptive and unfair debt collection practices
committed by debt collectors. The FDCPA in general prohibits harassment, false
representations and unfair practices, including limitations on the acceptable
format and wording of letters, envelopes and other communications from debt
collectors to debtors. The FDCPA provides for civil liability for the violation
of its provisions. The maximum liability exposure in a class action would be
$1,000 for each named individual and such amount as the court may allow for
other class members, not to exceed the lesser of $500,000 or 1% of the net worth
of the debt collector plus costs and reasonable attorneys' fees. In addition to
the FDCPA, the Company's debt collector customers may be subject to various
state statutes and regulations. Such regulations may afford greater protection
to consumers than the FDCPA.
From time to time, certain of the Company's customers and the Company are
subject to claims or are parties to litigation under the FDCPA involving
services supplied by the Company to such customers, such as collection letter
processing. These actions sometimes relate to the form and content of the
collection letters distributed by the company. Although the Company believes
that it is not subject to the FDCPA because it is not a debt collector, there
can be no assurance that the Company will not be determined to be liable under
the FDCPA. In addition, although there are no contractual rights to
indemnification from the Company to its debt collection customers with respect
to such actions, a customer of the Company subject to, and in violation of, the
FDCPA or similar laws in connection with services provided by the Company to
such customer may ask (and in one case has asked) the Company for
indemnification for any losses the customer may incur in connection with such
violation. If indemnification for material amounts is required or the Company is
determined to be liable for multiple violations of such laws, it could have a
material adverse effect on the Company's business, financial condition or
results of operations.
LITIGATION
The Company is, from time to time, a party to legal proceedings arising in
the normal course of its business. Management believes that none of the legal
proceedings currently outstanding will have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Regulation." In January and February, 1997, the Company was named as a
co-defendant in three lawsuits filed in the United States District Court for the
Northern District of Illinois purporting to be class actions and alleging
violations of the FDCPA on the part of the Company in the printing and mailing
of collection letters for certain of its customers. The complaints demand
compensatory damages in the amount of one dollar for each letter sent to members
of the purported classes of
39
<PAGE> 41
plaintiffs and punitive damages. The Company has moved for summary judgment in
each of these lawsuits in part on the grounds that the Company is not a "debt
collector" within the meaning of the FDCPA. Although there can be no assurance
as to the outcome of this litigation, the Company believes that it has
meritorious defenses to the allegations made in the complaints and is defending
itself vigorously.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that: (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes; or (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposal or other releases of solid wastes and hazardous substances.
The Company is not currently aware of any environmental conditions relating
to present or past waste generation at or from these facilities that would be
likely to have a material adverse effect on the business, financial condition or
results of operations of the Company. However, there can be no assurances that
environmental liabilities in the future will not have a material adverse effect
on the business, financial condition or results of operations of the Company.
EMPLOYEES
As of July 31, 1997, the Company had approximately 1,700 employees.
Included in the total number of employees are approximately 170 part-time
employees. No employees of the Company are represented by a labor union. The
Company considers its relations with its employees to be good.
40
<PAGE> 42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers as of July 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------
<S> <C> <C>
Robert A. Yanover......................... 61 Chairman of the Board, Director
Gary L. Monroe............................ 43 President and Chief Executive Officer, Director
William J. Rauwerdink..................... 47 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
Brian E. Jablonski........................ 41 Executive Vice President of Marketing and Sales
Allen J. Nesbitt.......................... 50 Director and Senior Consultant
Donald M. Gleklen......................... 60 Director
Bruce V. Rauner........................... 41 Director
Joseph P. Nolan........................... 32 Director
Fariborz Ghadar........................... 50 Director
</TABLE>
Robert A. Yanover has served as Chairman of the Board and as Director of
the Company and its predecessor, 3PM, since 3PM's inception. Mr. Yanover also
serves as President of Computer Leasing Company of Michigan, Inc. See "Certain
Relationships and Related Transactions -- Certain Affiliate Transactions." Mr.
Yanover is the founder and former president of 3PM.
Gary L. Monroe has served as Chief Executive Officer of the Company since
February, 1996, President since April, 1997 and a Director of the Company since
he joined the Company in September, 1995. From September, 1995 to February,
1996, Mr. Monroe served as Executive Vice President of the Company. From May,
1992 to September, 1995, Mr. Monroe served as President of Kodak Imaging
Services, Inc., a subsidiary of Eastman Kodak Co. From August, 1990 to May,
1992, Mr. Monroe served as Director of Finance and Strategic Planning of the
Health Sciences Division of Eastman Kodak Co.
William J. Rauwerdink has served as Executive Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company since he joined the
Company in May, 1996. From February, 1993 to April, 1995, Mr. Rauwerdink served
as Executive Vice President, Chief Financial Officer and Treasurer of The
MEDSTAT Group, Inc., a publicly traded company in the healthcare information
industry. Mr. Rauwerdink was a Partner with the Detroit office of the
international accounting and consulting firm of Deloitte & Touche from 1983 to
1993. Mr. Rauwerdink is a certified public accountant. See "-- Certain Legal
Proceedings."
Brian E. Jablonski has served as Executive Vice President of Marketing and
Sales since he joined the Company in July, 1996. From 1992 until June, 1996, Mr.
Jablonski served as Vice President, Sales and Marketing of Kodak Imaging
Services, Inc., a subsidiary of Eastman Kodak Co. From 1979 to 1992, Mr.
Jablonski held various positions at Eastman Kodak Co., including Branch Business
Manager, District Sales Manager and Director -- Markets Development Electronic
Printing and Publishing.
Allen J. Nesbitt has served as a Director of the Company and 3PM since
3PM's inception. Mr. Nesbitt served as President of the Company from its
inception until April, 1997 and is currently a senior consultant to the Company.
See "Certain Relationships and Related Transactions -- Certain Affiliate
Transactions."
Donald M. Gleklen has served as a Director of the Company since August,
1995. Mr. Gleklen has served as the President of Jocard Financial Services, Inc.
since February, 1995. From March, 1994 to February, 1995, Mr. Gleklen served as
the special counsel to Robert J. Brobyn & Associates, Attorneys at Law. From
September, 1984 to March, 1994, Mr. Gleklen served as Senior Vice President --
41
<PAGE> 43
Corporate Development of Mediq Incorporated, a publicly traded company in the
healthcare industry. Mr. Gleklen is also a director of Gandalf Technologies,
Inc., Nutramax Products, Inc., NewWest Eyeworks, Inc. and Microleague
Multimedia, Inc.
Bruce V. Rauner has served as a Director of the Company since January,
1995. Mr. Rauner is a principal and has been with Golder, Thoma, Cressey,
Rauner, Inc. ("GTCR"), an affiliate of GTCR Fund IV, since 1981. Mr. Rauner is
also a director of ERO, Inc., COREStaff, Inc., Coinmach Laundry Corporation and
Polymer Group, Inc.
Joseph P. Nolan has served as a Director of the Company since July, 1996.
Mr. Nolan is a principal and has been with GTCR since February, 1994. From May,
1990 to January, 1994, Mr. Nolan was Vice President Corporate Finance at Dean
Witter Reynolds Inc. Mr. Nolan is also a director of Esquire Communications,
Inc.
Fariborz Ghadar has served as a Director of the Company since January,
1997. Dr. Ghadar has served as the Merrill Lynch William A. Schreyer Chair of
Global Management, Policies and Planning and Director of the Center for Global
Business Study at the Pennsylvania State University Smeal College of Business
Administration since August, 1994. From September, 1992 to June, 1994, Dr.
Ghadar was Professor and Chairman of the International Business Department at
the George Washington School of Business and Public Management. Dr. Ghadar is
also Chairman of the Intrados/International Management Group, a Washington-based
business, offering executive development programs and strategic assessment
services.
The Board currently consists of seven directors, divided into three
classes. At each annual meeting of the Company's stockholders, successors to the
class of directors whose term expires at such meeting are elected to serve for
three-year terms or until their successors are duly elected and qualified.
Messrs. Nolan, Nesbitt and Ghadar are members of the class whose term expires in
1998, Messrs. Yanover and Gleklen are members of the class whose term expires in
1999, and Messrs. Monroe and Rauner are members of the class whose term expires
in 2000. The Board has the power to appoint the officers of the Company. Each
officer will hold office for such term as may be prescribed by the Board and
until such person's successor is chosen and qualified or until such person's
death, resignation or removal. There are four committees of the Board: the
Compensation Committee, the Option Committee, the Audit Committee and the Public
Offering Committee. The Compensation Committee, which is composed of Messrs.
Gleklen and Rauner determines the Company's executive compensation policies,
including the salaries, compensation and benefits of executive officers and
employees of the Company. The Option Committee, which is composed of Messrs.
Gleklen, Nolan and Rauner, is responsible for administering and granting options
in accordance with the Company's 1995 Stock Option Plan. The Audit Committee,
which is composed of Messrs. Gleklen, Nolan and Yanover, among other duties,
selects the Company's independent accountants and is primarily responsible for
approving the services performed by the Company's independent accountants and
for reviewing and evaluating the Company's accounting policies and its system of
internal accounting controls. The Public Offering Committee, which is composed
of Messrs. Monroe, Nesbitt, Nolan and Yanover, considered the advisability of a
public offering of the Company's securities in 1997. The Company does not have a
nominating committee.
42
<PAGE> 44
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows, as to the Chief Executive Officer and each of
the other four most highly compensated executive officers whose salary plus
bonus exceeded $100,000 during the last fiscal year, information concerning all
compensation paid for services to the Company in all capacities during the last
three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION COMMON STOCK
--------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS COMPENSATION
--------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert A. Yanover..................... 1996 $ 65,000 $ 49,000 -- $334,651(2)
Chairman of the Board 1995 65,000 61,759 -- 5,929
Gary L. Monroe(3)..................... 1996 $175,000 $ 65,945 20,000(3) $ 3,243(2)
President and Chief Executive 1995 46,723 -- 170,452(3) 40,000
Officer
William J. Rauwerdink(4).............. 1996 $ 85,673 $ 11,670 70,000(4) $ 232(2)
Executive Vice President, Chief 1995 -- -- -- --
Financial Officer, Treasurer and
Secretary
Brian E. Jablonski(5)................. 1996 $ 64,904 -- 75,000(5) $ 50,102(2)
Executive Vice President 1995 -- -- -- --
of Marketing and Sales
Allen J. Nesbitt(6)................... 1996 $133,279 $ 73,514 -- $338,191(2)
Senior Consultant 1995 130,000 116,071 -- 10,562
</TABLE>
- ---------------
(1) Salary includes amounts deferred, if any, pursuant to the Company's 401(k)
plan.
(2) Represents expenses of $5,791, $2,835 and $9,295 incurred by the Company in
connection with the operation of an automobile by Messrs. Yanover, Monroe
and Nesbitt, respectively; a matching contribution of $3,166 by the Company
to each of Messrs. Yanover's and Nesbitt's 401(k) accounts; a contribution
of $1,123, $408, $1,152, $232 and $102 by the Company for excess life
insurance on Messrs. Yanover, Monroe, Nesbitt, Rauwerdink and Jablonski,
respectively; reimbursed relocation expenses for 1996 of $50,000 paid under
the terms of Mr. Jablonski's employment agreement; and forgiveness of
receivables of $324,571 and $324,578 with respect to Messrs. Yanover and
Nesbitt. See "Certain Relationships and Related Transactions -- Seller
Credit Agreements."
(3) Mr. Monroe has served as Chief Executive Officer since February, 1996 and as
President since April, 1997. Options with respect to 20,000 shares were
awarded to Mr. Monroe on December 17, 1996, and options with respect to
170,452 shares were awarded to Mr. Monroe on December 21, 1995.
(4) Mr. Rauwerdink became Executive Vice President, Chief Financial Officer,
Treasurer and Secretary on May 6, 1996 at a base annual salary of $135,000.
Options with respect to 55,000 shares were awarded to Mr. Rauwerdink on May
6, 1996, and options with respect to 15,000 shares were awarded to Mr.
Rauwerdink on December 17, 1996.
(5) Mr. Jablonski became Executive Vice President of Marketing and Sales on June
16, 1996 at a base annual salary of $135,000. Options with respect to 60,000
shares were awarded to Mr. Jablonski on July 1, 1996, and options with
respect to 15,000 shares were awarded to Mr. Jablonski on December 17, 1996.
(6) Mr. Nesbitt served as President from the inception of the Company until
April, 1997, at which time he became a senior consultant to the Company.
43
<PAGE> 45
Stock Option Information
The following table sets forth certain information regarding grants of
stock options made during the year ended December 31, 1996 to the executive
officers named in the Summary Compensation Table who received such grants:
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF
SHARES OF PERCENT OF
COMMON TOTAL OPTIONS
STOCK GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE MARKET PRICE
OPTIONS FISCAL YEAR PRICE PER ON DATE OF EXPIRATION
NAME GRANTED(2) 1996 SHARE(3)(4) GRANT(3) DATE
- ------------------------------- ---------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Gary L. Monroe................. 20,000 5.2% $16.75 $16.75 12/17/03
William J. Rauwerdink.......... 55,000 14.4% $ 3.20 $10.85 5/6/03
15,000 3.9% 16.75 16.75 12/17/03
Brian E. Jablonski............. 60,000 15.7% $ 3.20 $10.85 7/1/03
15,000 3.9% 16.75 16.75 12/17/03
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
COMMON STOCK PRICE
APPRECIATION FOR OPTION TERM(1)
--------------------------------
NAME 0% 5% 10%
- ------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Gary L. Monroe................. -- $136,379 $ 317,820
William J. Rauwerdink.......... $420,750 $663,687 $ 986,897
-- 102,284 238,365
Brian E. Jablonski............. $459,600 $724,022 $1,076,615
-- 102,284 238,365
</TABLE>
- ---------------
(1) Potential realizable value is based on the assumption that Common Stock of
the Company appreciates at the annual rate shown (compounded annually) from
the date of grant until the expiration of the option term (seven years).
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not represent an estimate by the
Company of future stock price growth.
(2) The stock options granted to Messrs. Monroe, Rauwerdink and Jablonski, with
respect to the underlying 20,000, 15,000 and 15,000 shares of Common Stock,
respectively, were granted on December 17, 1996. The stock option granted to
Mr. Rauwerdink, with respect to the underlying 55,000 shares of Common
Stock, was granted on May 6, 1996. The stock option granted to Mr.
Jablonski, with respect to the underlying 60,000 shares of Common Stock, was
granted on July 1, 1996. All stock options granted have seven year terms and
become exercisable with respect to 20% of the shares covered thereby
beginning one year after the date of grant and 20% on each anniversary date
thereafter, with full vesting occurring on the fifth anniversary of the date
of grant. However, with respect to the options for the 55,000 shares awarded
to Mr. Rauwerdink and the 60,000 shares awarded to Mr. Jablonski, 20% of
such shares became vested and exercisable on the date of the Company's
initial public offering of Common Stock in October, 1996, and 20% vest on
each anniversary of the Company's initial public offering of Common Stock in
October, 1996.
(3) Options with respect to the December 17, 1996 awards were granted at an
exercise price equal to the fair market value of the Company's Common Stock,
as determined by reference to the closing price reported on the Nasdaq
National Market System on the date of grant. Options granted prior to the
Company's initial public offering of Common Stock in October, 1996 were
granted at a price determined by the Board of Directors.
(4) The exercise price and tax withholding obligations may be paid in cash and,
subject to certain conditions or restrictions, by delivery of already owned
shares or pursuant to a cashless exercise procedure under which the optionee
provides irrevocable instructions to a brokerage firm to sell the purchased
shares and to remit to the Company, out of the sale proceeds, an amount
equal to the exercise price plus all applicable withholding taxes.
44
<PAGE> 46
AGGREGATE OPTION EXERCISES IN 1996 AND 1996 YEAR END OPTION VALUES
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table above who hold options, certain information
regarding the exercise of stock options during the year ended December 31, 1996
and the value of options held at year end:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT YEAR-END AT YEAR-END(1)
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Gary L. Monroe............. -- -- 170,452/20,000 $3,426,085/$75,000
William J. Rauwerdink...... 11,000 $190,300 0/59,000 0/817,450
Brian E. Jablonski......... -- -- 12,000/63,000 207,600/886,650
</TABLE>
- ---------------
(1) Market value of underlying securities at exercise date or year end, as the
case may be, minus the exercise price.
EMPLOYMENT AGREEMENTS
Mr. Monroe. The Company and Mr. Monroe are parties to an employment
agreement dated as of August 7, 1996 (the "Monroe Employment Agreement"), which
has a term of two years. The Monroe Employment Agreement provides that Mr.
Monroe will serve as Chief Executive Officer of the Company at an annual salary
of $175,000 plus a bonus targeted at 50% of his annual salary and will receive
options to purchase 170,452 shares of Common Stock. The Monroe Employment
Agreement also provides that if Mr. Monroe's employment is terminated or his
duties materially reduced, he would be entitled to severance payments at an
annualized rate equal to his base salary plus the greater of his actual bonus
for the preceding year or 50% of his base salary. Such severance payments shall
be payable for the greater of one year or the remaining term of the agreement.
Mr. Rauwerdink. On April 30, 1996, the Company made a written offer of
employment to Mr. Rauwerdink, which Mr. Rauwerdink accepted. Pursuant to the
offer, the Company named Mr. Rauwerdink as its Chief Financial Officer,
Executive Vice President, Secretary and Treasurer at an annual salary of
$135,000 plus a bonus targeted at 50% of his annual salary, committed to grant
him an option to purchase 55,000 shares of its Common Stock and agreed to
provide him severance payments equal to 90 days salary and bonus if the Company
were to terminate his employment without cause.
Mr. Jablonski. On June 12, 1996, the Company made a written offer of
employment to Mr. Jablonski, which Mr. Jablonski accepted. Pursuant to the
offer, the Company agreed to name Mr. Jablonski as its Vice President of
Marketing and Sales at an annual salary of $135,000 plus a bonus targeted at 50%
of his annual salary, committed to grant him an option to purchase 60,000 shares
of its Common Stock and agreed to pay certain of his relocation expenses.
STOCK OPTIONS
1995 Stock Option Plan
The Company's 1995 Stock Option Plan (the "1995 Stock Option Plan") was
adopted by the Board and approved by the Company's stockholders in 1995. The
1995 Stock Option Plan is administered by a committee (the "Option Committee")
composed of non-management members of the Board who are appointed by the Board.
The Option Committee currently consists of Messrs. Gleklen, Nolan and Rauner.
The Option Committee selects certain key persons, which may include directors of
the Company, to be participants of the Plan (the "Participants") and determines
the terms and conditions of the options. The 1995 Stock Option Plan provides for
the issuance of options to Participants,
45
<PAGE> 47
covering 1,000,000 shares of Common Stock, subject to certain adjustments
reflecting changes in the Company's capitalization.
Options granted or to be granted under the 1995 Stock Option Plan may be
either incentive stock options ("ISOs") or such other forms of non-qualified
stock options as the Option Committee may determine. ISOs are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The exercise price of
the options will be the fair market value of a share of Common Stock on the date
of grant, except that the exercise price of an ISO granted to an individual who
directly (or by attribution under Section 424(d) of the Code) owns shares
possessing more than 10% of the total combined voting power of all classes of
stock of the Company will be at least 110% of the fair market value of a share
of Common Stock on the date of grant.
Options granted or to be granted under the 1995 Stock Option Plan may be
subject to time vesting and certain other restrictions at the Option Committee's
sole discretion. The Board generally has the power and authority to amend the
1995 Stock Option Plan at any time without the approval of the Company's
stockholders, provided that, without the approval of the Company's stockholders,
the Board shall not amend the 1995 Stock Option Plan to cause any outstanding
ISOs to no longer qualify as ISOs. In addition, the Board shall not amend the
1995 Stock Option Plan to materially and adversely affect the rights of an
option holder under such option without the consent of such option holder.
Stock Option Agreements
Mr. Monroe. The Company and Mr. Monroe entered into an Employee Stock
Option Agreement dated December 21, 1995, pursuant to which the Company granted
Mr. Monroe an option to purchase 170,452 shares of the Company's Common Stock
for a price of $0.40 per share. All of such options vested and became
exercisable on October 9, 1996, the date of the Company's initial public
offering of Common Stock. The option expires on December 21, 2002. In addition,
the Company and Mr. Monroe entered into an Employee Stock Option Agreement dated
December 17, 1996 pursuant to which the Company granted Mr. Monroe an option to
purchase 20,000 shares of the Company's Common Stock for a price of $16.75 per
share. Under the Monroe Stock Option Agreement, one-fifth of the shares covered
by the option granted to Mr. Monroe vest and become exercisable on December 17,
1997 and one-fifth of the shares covered by such option vest and become
exercisable on each of the first four anniversaries of such date if Mr. Monroe
is employed by Lason on such dates. Notwithstanding the foregoing, all unvested
options granted to Mr. Monroe under the Monroe Stock Option Agreement shall vest
and become exercisable upon the consummation of a sale of the Company, if Mr.
Monroe is employed by Lason on such date. The option granted under the Monroe
Stock Option Agreement expires on December 12, 2003.
Mr. Rauwerdink. The Company and Mr. Rauwerdink entered into an Employee
Stock Option Agreement dated May 6, 1996 pursuant to which the Company granted
Mr. Rauwerdink an option to purchase 55,000 shares of the Company's Common Stock
for a price of $3.20 per share. Under this Stock Option Agreement, one-fifth of
the shares covered by the option granted to Mr. Rauwerdink vested and became
exercisable on October 9, 1996, the date of the Company's initial public
offering of Common Stock, and one-fifth of the shares covered by such option
vest and become exercisable on each of the first four anniversaries of such date
if Mr. Rauwerdink is employed by Lason on such dates. Notwithstanding the
foregoing, all unvested shares covered by the option granted to Mr. Rauwerdink
under the Stock Option Agreement shall vest and become exercisable upon the
consummation of a sale of the Company, if Mr. Rauwerdink is employed by Lason on
such date. The option granted under the Stock Option Agreement expires on May 6,
2003. In addition, the Company and Mr. Rauwerdink entered into an Employee Stock
Option Agreement dated December 17, 1996 pursuant to which the Company granted
Mr. Rauwerdink an option to purchase 15,000 shares of the Company's Common Stock
for a price of $16.75 per share. Under this Stock Option Agreement, one-fifth of
the shares covered by the option granted to Mr. Rauwerdink vest and become
exercisable on December 17, 1997, and one-fifth of the shares covered by such
option vest and become exercisable on each of the first
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<PAGE> 48
four anniversaries of such date if Mr. Rauwerdink is employed by Lason on such
dates. Notwithstanding the foregoing, all unvested options granted to Mr.
Rauwerdink under the Stock Option Agreement shall vest and become exercisable
upon the consummation of a sale of the Company, if Mr. Rauwerdink is employed by
Lason on such date. The option granted under the Stock Option Agreement expires
on December 17, 2003.
Mr. Jablonski. The Company and Mr. Jablonski entered into an Employee Stock
Option Agreement dated June 16, 1996 pursuant to which the Company granted Mr.
Jablonski an option to purchase 60,000 shares of the Company's Common Stock for
a price of $3.20 per share. Under the Jablonski Stock Option Agreement,
one-fifth of the shares covered by such option vested and became exercisable on
October 9, 1996, the date of the Company's initial public offering of Common
Stock, and one-fifth of the shares covered by such stock option vest and become
exercisable on each of the first four anniversaries of such date if Mr.
Jablonski is employed by Lason on such dates. Notwithstanding the foregoing, all
unvested shares covered by the option granted to Mr. Jablonski under the Stock
Option Agreement shall vest and become exercisable upon consummation of a sale
of the Company, if Mr. Jablonski is employed by Lason on such date. The option
granted under the Stock Option Agreement expires on June 16, 2003. In addition,
the Company and Mr. Jablonski entered into an Employee Stock Option Agreement
dated December 17, 1996 pursuant to which the Company granted Mr. Jablonski, an
option to purchase 15,000 shares of the Company's Common Stock for a price of
$16.75 per share. Under this Stock Option Agreement, one-fifth of the shares
covered by the option granted to Mr. Jablonski vest and become exercisable on
December 17, 1997 and one-fifth of the shares covered by such option vest and
become exercisable on each of the first four anniversaries of such date if Mr.
Jablonski is employed by Lason on such dates. Notwithstanding the foregoing, all
unvested options granted to Mr. Jablonski under the Stock Option Agreement shall
vest and become exercisable upon the consummation of a sale of the Company, if
Mr. Jablonski is employed by Lason on such date. The option granted under the
Stock Option Agreement expires on December 17, 2003.
Mr. Gleklen. The Company entered into a Stock Option Agreement dated August
7, 1995 (the "Gleklen Stock Option Agreement") with Mr. Gleklen pursuant to
which Mr. Gleklen was granted an option to purchase 12,500 shares of the
Company's Common Stock for a price of $0.40 per share. Under the Gleklen Stock
Option Agreement, one-fifth of the shares covered by the option granted to Mr.
Gleklen vest and become exercisable on each of the first five anniversaries of
the date of such agreement. The option granted to Mr. Gleklen under the Gleklen
Stock Option Agreement expires on the earlier to occur of (i) August 7, 2005,
(ii) three months from the date Mr. Gleklen is no longer a director of the
Company and (iii) the effective date of a sale of the Company as set forth in
the Gleklen Stock Option Agreement. Notwithstanding the foregoing, all shares
covered by the option granted to Mr. Gleklen vest and become exercisable during
the ten days immediately preceding any such sale of the Company or upon
termination of his directorship as a result of death, incapacity or upon the
expiration of his current term as a director in 1999.
Dr. Ghadar. The Company and Dr. Ghadar entered into a Stock Option
Agreement dated January 15, 1997, in connection with Dr. Ghadar's election to
the Board, pursuant to which the Company granted to Dr. Ghadar an option to
purchase 5,000 Shares of the Company's Common stock for a price of $19.75 per
share. Under this Stock Option Agreement, one-fifth of the shares covered by the
option granted to Dr. Ghadar vest and become exercisable on January 15, 1998 and
one-fifth of the shares covered by such option vest and become exercisable on
each of the first four anniversaries of such date if Dr. Ghadar is still a
Director of Lason on such dates. Notwithstanding the foregoing, all unvested
options granted to Dr. Ghadar under the Stock Option Agreement shall vest and
become exercisable upon the consummation of a sale of the Company, if Dr. Ghadar
is still a Director of Lason on such date. The option granted under the Stock
Option Agreement expires on January 15, 2004.
401(K) PLAN
Lason sponsors a 401(k) profit-sharing plan and trust (the "401(k) Plan").
Each employee who is at least 21 years of age or older who has worked for the
Company for 12 months and performed 1,000
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<PAGE> 49
"Hours of Service" (as such term is defined in the 401(k) Plan), or has an
adjusted service date with the equivalent or greater term of service, is
eligible to participate in the 401(k) Plan. Eligible participants may contribute
not less than 2% and up to 15% of their pretax compensation to the 401(k) Plan.
The 401(k) Plan is contributory, and the Company, at its discretion, can match
up to 33% of eligible participant contributions not to exceed 9% of the
participant's earnings. The Company's matching contributions for the years ended
December 31, 1994, 1995 and 1996 totaled approximately $156,000, $172,000 and
$201,000, respectively.
1997 MANAGEMENT BONUS PLAN
The Company has established a Management Bonus Plan for the 1997 fiscal
year (the "1997 Bonus Plan"). Participants in the 1997 Bonus Plan were selected
by the Company's President and Chief Executive Officer. Each participant in the
1997 Bonus Plan is entitled to receive a bonus payment if the Company as a whole
or, in the case of certain participants, a defined portion of the Company with
which such participant is principally involved exceeds a predetermined financial
target with respect to a quarter. If 85% or more of the target is obtained for a
quarter, a pro rata portion of the bonus is payable, and if less than 85% of the
target is obtained, no bonus is paid with respect to that quarter. Bonuses that
are not obtained in any quarter are not carried over to any subsequent quarter.
If the targets are met for each of the quarters in the year ending December 31,
1997, Messrs. Monroe, Rauwerdink and Jablonski would be entitled to bonuses of
$87,500, $67,500 and $67,500, respectively, and the aggregate bonus amounts to
be paid to all eligible participants under the 1997 Bonus Plan would be
approximately $279,900. Based on the Company's results for the six months ended
June 30, 1997, Messrs. Monroe, Rauwerdink and Jablonski were awarded bonuses of
approximately $21,875, $16,875 and $16,875, respectively, and $69,975 in
aggregate bonuses were awarded to all eligible participants under the 1997 Bonus
Plan.
DIRECTORS' COMPENSATION
Each director who is not an employee of the Company receives $1,000 for
attendance at each meeting of the Board and for each committee meeting attended
on a day other than a Board meeting. Directors are reimbursed for out-of-pocket
expenses incurred in connection with attending meetings. Directors may also be
issued options pursuant to the 1995 Stock Option Plan. See "-- Stock Options --
1995 Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended December 31, 1996, compensation of executive officers of
the Company was determined by the Board, which included Messrs. Monroe, Nesbitt
and Yanover. The 1995 Stock Option Plan is administered by the Option Committee
consisting of Messrs. Gleklen, Nolan and Rauner.
CERTAIN LEGAL PROCEEDINGS
On December 11, 1995, Mr. Rauwerdink consented to the entry of an order
enjoining him from violating certain antifraud and tender offer provisions of
the federal securities laws. The order required him to give up profits and pay
penalties and interest totaling approximately $225,000. He neither admitted nor
denied the allegations made in the proceeding.
The proceeding involved the rollover of certain funds from a former
employer's profit sharing plan. The investment directions made in connection
with the rollover into Mr. Rauwerdink's 401(k) account at his new employer
specified that the investment of such funds be made 50% in the stock of his
employer and 50% in other investments (which was identical to the allocation he
made at the time he began his employment with respect to other investments in
his 401(k) account) and resulted in the purchase of shares of common stock of
the new employer at a time when it was alleged that the employer was engaged in
merger negotiations. The shares purchased in the rollover transaction
constituted approximately 8% of Mr. Rauwerdink's total holdings in his new
employer's common stock.
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<PAGE> 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF LASON SYSTEMS, INC.
On January 17, 1995, Lason Acquisition Corp., a Delaware corporation which
after the acquisition changed its name to Lason Systems, Inc., purchased
substantially all of the assets and assumed certain liabilities (the "1995
Recapitalization") of Lason Systems, Inc., a Michigan corporation ("Lason
Michigan"), pursuant to an Asset Purchase Agreement by and among Lason Systems,
Lason Michigan, The Joseph Jonathon Yanover and Jennifer D. Yanover Irrevocable
Trust dated January 5, 1993 (the "J. Yanover Trust"), the Robert A. Yanover
Living Trust u/a/d May 11, 1982 (the "R. Yanover Trust"), the Allen J. Nesbitt
Living Trust dated December 7, 1994 (the "Nesbitt Trust"), Mr. Richard C.
Kowalski, Mr. Donald L. Elland and Mr. Gregory Carey. In connection with the
1995 Recapitalization, the J. Yanover Trust, the R. Yanover Trust, and the
Nesbitt Trust (the "Designated Stockholders") and the Company entered into an
Executive Stock Agreement dated January 17, 1995 (the "Executive Stock
Agreement") pursuant to which the J. Yanover Trust, the R. Yanover Trust and the
Nesbitt Trust purchased 66,074 and 402,987 shares, respectively, of the
Company's Class A-1 Common Stock for a price of $1.00 per share, and GTCR Fund
IV and the Company entered into a Purchase Agreement dated January 17, 1995 (the
"GTCR Purchase Agreement") pursuant to which GTCR Fund IV purchased 1,000,001
shares of the Company's Class B Common Stock for an aggregate purchase price of
$10.0 million.
SELLER CREDIT AGREEMENTS
In connection with the 1995 Recapitalization, Lason Systems entered into a
Credit Agreement dated January 17, 1995 (each, a "Seller Credit Agreement") with
each of (i) Mr. Yanover, the J. Yanover Trust and the R. Yanover Trust and (ii)
Mr. Nesbitt and the Nesbitt Trust, pursuant to which Lason Systems loaned
$609,778 and $609,791 (each, a "Loan") to Messrs. Yanover and Nesbitt (the
"Borrowers"), respectively. The Company entered into the Seller Credit
Agreements to provide the respective Borrower with funds to pay certain tax
liabilities of the Borrowers and their respective affiliates in connection with
the Acquisition. Under the Seller Credit Agreements, each Borrower was obligated
to repay the amount of his respective Loan, together with all unpaid accrued
interest thereon, on January 17, 2005. The obligations of Messrs. Yanover and
Nesbitt under their respective Seller Credit Agreements were secured by a pledge
of 469,061 and 469,064 shares of Class A-1 Common Stock owned by such Borrower
and its affiliates. Except for limited circumstances, Lason's sole recourse
against each Borrower for the amount of the Loan to such Borrower was to the
shares of Common Stock pledged with respect to such Seller Credit Agreement.
During the year ended December 31, 1996, the largest aggregate amount of
indebtedness outstanding of Messrs. Yanover and Nesbitt (including interest) to
the Company was $649,141 and $649,155, respectively. Of these respective
amounts, prior to the end of 1996, Messrs. Yanover and Nesbitt paid 50% to the
Company and the Company forgave the other 50%, so that no indebtedness of
Messrs. Yanover and Nesbitt was outstanding at December 31, 1996.
REGISTRATION AGREEMENT
In connection with the 1995 Recapitalization, the Company and the
Designated Stockholders, GTCR Fund IV, Mr. Yanover and Mr. Nesbitt (the "1995
Stockholders")entered into the Registration Agreement. Pursuant to the
Registration Agreement, the 1995 Stockholders and their transferees, who upon
the completion of the Offering will hold in the aggregate 3,182,553 shares of
Common Stock, are entitled to certain registration rights. The holders of at
least a majority of the shares of Common Stock held by the GTCR Fund IV (the
"GTCR Registrable Shares") and the holders of at least a majority of the shares
of Common Stock held by the Designated Stockholders (the "Designated Stockholder
Registrable Shares," and collectively with the GTCR Registrable Shares, the
"Registrable Shares") may each require the Company on one occasion to effect the
registration of the Registrable Shares on Form S-1 (a "Long-Form Registration")
in which the Company will pay all registration expenses. In
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<PAGE> 51
addition to the Long-Form Registrations, the holders of at least a majority of
the GTCR Registrable Shares and the holders of at least a majority of the
Designated Stockholder Registrable Shares may each require the Company to effect
two registrations of Registrable Shares on Form S-2 or S-3 (together with the
Long-Form Registrations, the "Demand Registrations") in which the Company will
pay all registration expenses. Finally, if the Company proposes to register any
of its Common Stock under the Securities Act, whether for its own account or
otherwise (a "Company Registration"), the holders of Registrable Shares are
entitled to notice of such registration and, subject to certain priority
provisions, are entitled to include their Registrable Shares in such
registration with all registration expenses of the holders of Registrable Shares
being paid by the Company. Notwithstanding the foregoing, the Company will not
be obligated to effect a Demand Registration within six months after the
effective date of a prior Demand Registration or of a Company Registration in
which holders of Registrable Shares participated, and, under certain
circumstances, a request may be delayed by the Company for up to six months (but
on no more than one occasion).
VOTING AGREEMENT
The J. Yanover Trust, the R. Yanover Trust, the Joseph Jonathan Yanover and
Jennifer D. Yanover Irrevocable Trust No. 2 dated August 6, 1996 (the "J.
Yanover Trust No. 2"), the Nesbitt Trust, the James A. Nesbitt and Jennifer
Rebecca Nesbitt Trust effective as of January 1, 1996, Mr. Yanover, Mr. Nesbitt
(the "Executive Group") and GTCR Fund IV (together with the Executive Group, the
"Existing Stockholders") are parties to the Voting Agreement providing for,
among other things, the designation of and voting with respect to the election
of directors of the Board by the Existing Stockholders. Under the Voting
Agreement, the Existing Stockholders agree to vote their shares such that the
Board at all times shall consist of two directors designated by GTCR Fund IV,
two directors designated by the Executive Group, the Company's Chief Executive
Officer and two outside directors jointly designated by GTCR Fund IV and the
Executive Group. If GTCR Fund IV and the Executive Group cannot agree on the
designation of an outside director with respect to any election of directors,
one nominee will be selected by each of GTCR Fund IV and the Executive Group and
the nominee obtaining the most votes in the election of directors, with the
Existing Stockholders voting without restriction, shall be elected to the Board.
The Existing Stockholders may not vote to remove the two directors nominated by
GTCR Fund IV and the two directors nominated by the Executive Group and must
vote to remove such directors if directed to do so by GTCR Fund IV or the
Executive Group, respectively, subject to the provisions of the Company's
Amended and Restated Certificate of Incorporation. The Voting Agreement
terminates when either GTCR Fund IV or the Executive Group holds in the
aggregate less than 15.0% of the Common Stock on a fully diluted basis.
Accordingly, the Voting Agreement will terminate on consummation of the
Offering.
CERTAIN AFFILIATE TRANSACTIONS
The Company leases property and a building in Livonia, Michigan, which
includes approximately 27,460 square feet of commercial space, from Mart
Associates, a Michigan general partnership ("Mart"). Mr. Yanover owns 43.3% of
Mart and is its managing partner. Mr. Nesbitt owns 33.3% of Mart and is one of
its partners. For the years ended December 31, 1994, 1995 and 1996 and for the
six months ended June 30, 1997, the Company paid $191,100, $191,100, $191,100,
and $81,900, respectively, in rent for such property and building. In addition,
the Company leases certain equipment from Computer Leasing Company of Michigan,
Inc. ("Computer Leasing"). Mr. Yanover owns 50.0% of Computer Leasing and serves
as its president, and Mr. Colin W.L. Armstrong (see "Principal Stockholders")
owns the other 50.0% and serves as its vice president. For the years ended
December 31, 1994, 1995 and 1996 and for the six months ended June 30, 1997, the
Company paid $30,100, $57,100, $184,390 and $55,000, respectively, for such
operating leases. The Company believes that each of the leases is at market
terms and rates.
The Company purchases printing services from Hatteras Printing, Inc.
("Hatteras"). Hatteras is owned by the wife of Mr. Nesbitt. For the years ended
December 31, 1994, 1995 and 1996, and for the
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<PAGE> 52
six months ended June 30, 1997, the Company paid Hatteras $726,000, $980,500,
$1,425,358 and $961,393, respectively, for such printing services. The Company
believes that it paid market prices for such printing services. In addition, the
Company sold copying and graphic art services to Hatteras in the amount of
$32,700, $75,200, $76,859 and $15,425, respectively, for the years ended
December 31, 1994, 1995 and 1996 and the six months ended June 30, 1997. Such
services were sold at the Company's then current prices.
Until August 6, 1996, Laurence B. Deitch served as trustee of the Joseph
Jonathan Yanover and Jennifer D. Yanover Irrevocable Trust dated January 5,
1993, which owns 4.6% of the Common Stock. Mr. Deitch is also a shareholder in
the law firm of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C. For the years
ended December 31, 1994, 1995 and 1996, and for the six months ended June 30,
1997, the Company paid Seyburn, Kahn, Ginn, Bess, Deitch and Serlin, P.C.
approximately $74,000, $189,000, $363,105 and $208,861, respectively, for legal
services.
All material business transactions between the Company and any executive
officer or director of the Company or any member of their immediate family will
be subject to review and approval by a majority of the Company's disinterested
directors. Additional transactions of the nature described above may take place
in the ordinary course of business.
THE RECAPITALIZATION
Immediately prior to the Company's initial public offering of Common Stock
on October 9, 1996, each share of Class A Common Stock, including the shares of
Class A Common Stock held by each of the officers and directors of the Company,
was converted into one share of Common Stock, and each share of Class B Common
Stock, all of which was held by GTCR Fund IV, was converted into approximately
1.3 shares of Common Stock. Each share of Common Stock was then split into 2.5
shares of Common Stock. Concurrent with the consummation of its initial public
offering of Common Stock, the Company used a portion of the proceeds of such
offering to redeem 692,047 shares of Common Stock owned by GTCR Fund IV at an
aggregate price of approximately $11.8 million. GTCR Fund IV acquired its
interest in the Company in January, 1995 for $10.0 million, or approximately
$3.13 per share of Common Stock.
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<PAGE> 53
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 31, 1997 (i) before the Offering and
(ii) after the Offering by each person who is known by the Company to own
beneficially more than 5% of the Common Stock, by each current executive officer
and director of the Company, each of the Selling Stockholders and by all
executive officers and directors of the Company as a group. Except as otherwise
indicated below, each of the persons named in the table has sole voting and
investment power with respect to the securities beneficially owned by it or him
as set forth opposite its or his name.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP NUMBER OF BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) SHARES TO AFTER OFFERING(1)
--------------------- BE SOLD IN ---------------------
NUMBER PERCENT THE NUMBER PERCENT
NAME OF BENEFICIAL OWNER: OF SHARES OF CLASS OFFERING OF SHARES OF CLASS
------------------------- --------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
GTCR Fund IV(2)(3)............................ 2,500,002 27.9% 823,400 1,676,602 15.0%
Colin W. L. Armstrong, Trustee(2)(4).......... 625,185 7.0% 286,417 338,768 3.0%
Robert A. Yanover(2)(5)....................... 476,442 5.3% 76,416 400,026 3.6%
Allen J. Nesbitt(2)(6)........................ 881,310 9.9% 290,376 590,934 5.3%
Gary L. Monroe(7)............................. 165,452 1.8% 33,090 132,362 1.2%
William J. Rauwerdink(8)...................... 11,000 * -- 11,000 *
Brian E. Jablonski(9)......................... 12,000 * -- 12,000 *
Donald M. Gleklen(10)......................... 7,500 * -- 7,500 *
Bruce V. Rauner(11)........................... 2,500,002 27.9% 823,400 1,676,603 15.0%
Joseph P. Nolan(11)........................... 2,500,502 27.9% 823,400 1,676,603 15.0%
Fariborz Ghadar(12)........................... -- * -- -- *
All Executive Officers and Directors of the
Company as a group (9 persons)(13).......... 4,053,706 45.3% 1,223,282 2,830,424 25.4%
OTHER SELLING STOCKHOLDERS:
- ----------------------------------------------
Donald L. Elland.............................. 100,447 1.1% 98,000 2,447 *
Richard C. Kowalski........................... 90,910 1.0% 65,000 25,910 *
Scott L. Christensen(14)...................... 25,570 * 15,000 10,570 *
James A. Nesbitt and Jennifer Rebecca Nesbitt
Irrevocable Trust effective as of January 1,
1996 for the Benefit of James A. Nesbitt
("J&J Trust 1")............................. 110,162 1.2% 36,229 73,933 *
James A. Nesbitt and Jennifer Rebecca Nesbitt
Irrevocable Trust Effective as of January 1,
1996 for the benefit of Jennifer Rebecca
Nesbitt ("J&J Trust 2")..................... 110,162 1.2% 36,229 73,933 *
James J. Dewan................................ 42,616 * 21,313 21,313 *
Bobby R. Stevens.............................. 18,530 * 18,530 -- *
</TABLE>
- ---------------
* Indicates less than 1%.
(1) The number of shares of Common Stock deemed outstanding before the Offering
is 8,945,893, and the number of shares of Common Stock deemed outstanding
after the Offering is 11,145,893 (11,475,893 if the Underwriters'
over-allotment option is exercised in full). Each of these numbers includes
47,441 shares of Common Stock issuable in connection with the ICS
Acquisition (see "Recent Acquisitions"). Shares of Common Stock subject to
options that are
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<PAGE> 54
exercisable within 60 days of July 31, 1997 are deemed beneficially owned
by the person holding such options for the purpose of computing the
percentage of ownership of such person but are not treated as outstanding
for the purpose of computing the percentage of any other person. If the
Underwriters' over-allotment option is exercised in full, GTCR Fund IV,
Colin W. L. Armstrong, Trustee, Robert A. Yanover, Allen J. Nesbitt, J&J
Trust 1 and J&J Trust 2 intend to sell 143,517, 31,621, 31,621, 50,613,
6,314 and 6,314 shares of Common Stock, respectively.
(2) Each of these parties has entered into an agreement providing for the
election of directors (see "Certain Relationships and Related Transactions
-- Voting Agreement"). Each such party disclaims beneficial ownership of
shares of Common Stock owned by each other such party.
(3) The address of this holder is 6100 Sears Tower, Chicago, Illinois 60606.
(4) Includes 415,185 shares of Common Stock held by the J. Yanover Trust and
210,000 shares of Common Stock held by the J. Yanover Trust No. 2 over
which Mr. Armstrong, as trustee, has investment and voting control. The
address of this holder is 116 Laurel Court, Ponte Verde Beach, Florida
32082.
(5) Includes 476,442 shares of Common Stock held by Yanover Associates Limited
Partnership. The address of this holder is 133 Quayside Drive, Jupiter,
Florida 33477.
(6) Includes 881,310 shares of Common Stock held by the Allen J. Nesbitt Living
Trust dated December 7, 1994. The address of this holder is 28400
Schoolcraft, Livonia, Michigan 48150.
(7) Includes 165,452 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of the Offering. The address of
this holder is 1305 Stephenson Highway, Troy, Michigan 48083.
(8) The address of this holder is 1305 Stephenson Highway, Troy, Michigan
48083. See "Management -- Stock Options."
(9) Includes 12,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of the Offering. The address of
this holder is 1305 Stephenson Highway, Troy, Michigan 48083. See
"Management -- Stock Options -- Stock Option Agreements."
(10) Includes 2,500 shares of Common Stock issuable upon exercise of options
exercisable within 60 days after the date of the Offering. The address of
this holder is 212 Jeffrey Lane, Newton Square, Pennsylvania 10973. See
"Management -- Stock Options -- Stock Option Agreements."
(11) Includes 2,500,002 shares of Common Stock held by GTCR Fund IV, of which
GTCR IV, L.P. is the general partner. See footnote (3) above. Each of
Messrs. Rauner and Nolan is a principal of Golder, Thoma, Cressey, Rauner,
Inc., the general partner of GTCR IV, L.P., and therefore may be deemed to
share investment and voting control over the shares of Common Stock held by
GTCR Fund IV. Each of Messrs. Rauner and Nolan disclaims beneficial
ownership of the shares of Common Stock owned by GTCR Fund IV. The address
of each of these holders is 6100 Sears Tower, Chicago, Illinois 60606.
(12) The address of this director is 555 Orlando Avenue, State College,
Pennsylvania 16803.
(13) Includes the shares of Common Stock described in footnotes (5), (6), (7),
(8), (9), (10), (11) and (12) above.
(14) Colin W.L. Armstrong has the right to direct the sale of 12,785 of Mr.
Christensen's shares.
53
<PAGE> 55
DESCRIPTION OF CREDIT AGREEMENT
The Company, through its subsidiary Lason Systems, was party to a Loan
Agreement, dated January 17, 1995, as amended March 25, May 15, July 10, and
August 16, 1996 (the "Credit Agreement"), with First Union National Bank as
agent and as Lender (as defined in the Credit Agreement) and each other Lender
which from time to time is a party thereto, providing for a $15.0 million term
loan facility, a $13.0 million revolving credit facility, an additional $10.0
million credit facility for acquisitions and an $8.5 million interim term loan
facility.
On February 21, 1997, the Credit Agreement was amended and restated to
provide revolving credit loans in the initial amount of $40.0 million, which was
then increased to $60.0 million on July 21, 1997 and later increased to $80.0
million on August 1, 1997. Lason will not be required to make principal payments
prior to 2001, the year of maturity of the loan. Interest on amounts outstanding
will be calculated based on interest rates determined at the time of borrowing.
Borrowings will bear interest at rates ranging from a base percentage rate plus
a maximum of 1.25% (a weighted average rate of 9.0% as of June 30, 1997) to
LIBOR plus a maximum of 2.25% (a weighted average rate of 6.94% as of June 30,
1997), depending on the Company's leverage ratio. As of July 31, 1997, the
Company had approximately $46.9 million outstanding under the Credit Agreement.
The Loans are secured by a pledge by Lason of the Collateral (as defined in
the Credit Agreement, generally the stock and assets of Lason Systems and its
subsidiaries) and by a guaranty by the Company. The Credit Agreement requires
Lason to meet certain financial tests, including minimum interest coverage,
maximum debt to operating cash flow ratio and minimum operating cash flow. The
Credit Agreement also contains covenants which, among other things, prohibit or
restrict the incurrence of additional indebtedness, transactions with
affiliates, sales of assets, acquisitions, investments, dissolution or mergers,
prepayments of other indebtedness, incurrence of additional liens and
encumbrances and other actions by Lason customarily restricted in such
agreements. The Credit Agreement contains customary events of default, including
payment defaults, breach of representations and warranties, covenant defaults,
cross-defaults to other indebtedness of Lason and to any default by Lason under
any agreement the termination of which would have a material adverse effect (as
defined in the Credit Agreement), certain events, bankruptcy and insolvency, the
entry of a judgment in an amount greater than $250,000 which shall not be
dismissed or stayed within 60 days, or a lien in excess of $250,000 is placed on
the Collateral (as defined in the Credit Agreement) by a governmental authority.
Upon the completion of the Offering, the Company plans to repay all of its
outstanding indebtedness under its Credit Agreement using most of the net
proceeds from the sale of Company shares of Common Stock.
54
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
The authorized capital stock of the Company consists of 20,000,000 shares
of common stock, par value $0.01 per share (the "Common Stock"), and 5,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock"). As
of July 31, 1997, there were 8,945,893 shares of Common Stock outstanding and 36
holders of record. No shares of Preferred Stock are outstanding. The following
summary of certain provisions of the Company's capital stock describes certain
material provisions of, but does not purport to be complete and is subject to,
and qualified in its entirety by, the Amended and Restated Certificate of
Incorporation and the By-Laws of the Company and by the provisions of applicable
law.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered hereby will be upon payment therefor, validly issued,
fully paid and nonassessable. Subject to the prior rights of the holders of any
Preferred Stock, the holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such times and
in such amounts as the Board may from time to time determine. See "Dividend
Policy." The shares of Common Stock redeemable or convertible, and the holders
thereof will have no preemptive rights or subscription rights to purchase any
securities of the Company. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive pro rata the assets
of the Company which are legally available for distribution, after payment of
all debts and other liabilities and subject to the prior rights of any holders
of Preferred Stock then outstanding. Each outstanding share of Common Stock is
entitled to vote on all matters submitted to a vote of stockholders. The Common
Stock is currently traded on the Nasdaq National Market under the trading symbol
"LSON."
PREFERRED STOCK
The Board may, without further action by the Company's stockholders, from
time to time, direct the issuance of shares of Preferred Stock in series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series. Satisfaction of any dividend preferences of outstanding shares
of Preferred Stock would reduce the amount of funds available for the payment of
dividends on shares of Common Stock. Holders of shares of Preferred Stock may be
entitled to receive a preference payment in the event of any liquidation,
dissolution or winding-up of the Company before any payment is made to the
holders of shares of Common Stock. Under certain circumstances, the issuance of
shares of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions, financings and other corporate transactions, may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The Board, without
stockholder approval, may issue shares of Preferred Stock with voting and
conversion rights which could adversely affect the holders of shares of Common
Stock.
CERTAIN PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND
BY-LAWS AND STATUTORY PROVISIONS
The Amended and Restated Certificate of Incorporation provides that the
Board will be divided into three classes, with each class, after a transitional
period, serving for three years, and one class being elected each year. A
majority of the remaining directors then in office, though less than a quorum,
or the sole remaining director, will be empowered to fill any vacancy on the
Board which arises during the term of a director or as a result of a newly
created directorship. The provision for a classified Board may be amended,
altered or repealed only upon the affirmative vote of the holders of at least
80% of the outstanding shares of the voting stock of the Company. The
classification of the Board may discourage a third party from making a tender
offer or otherwise attempting to gain control of the Company and may have the
effect of maintaining the incumbency of the Board.
55
<PAGE> 57
The Amended and Restated Certificate of Incorporation will require that any
action required or permitted to be taken by the Company's stockholders must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by consent in writing. Additionally, the Amended and Restated
Certificate of Incorporation and By-Laws will require that special meetings of
the stockholders of the Company be called only by the affirmative vote of at
least two members of the Board or by certain of at least two members of the
Board or by certain officers. These provisions may not be amended, altered or
repealed without the affirmative vote of at least 80% of the outstanding shares
of the voting stock of the Company.
The By-Laws will provide that stockholders seeking to bring business before
or to nominate directors at any annual meeting of stockholders must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company not less than 120 days nor more than 150 days prior to the first
anniversary of the annual meeting for the preceding year. The By-Laws also will
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions will restrict the ability of stockholders to bring
matters before the stockholders or to make nominations for directors at meetings
of stockholders. These provisions may not be amended, altered or repealed by the
stockholders without the affirmative vote of at least 80% of the outstanding
shares of the voting stock of the Company.
The Company is subject to the "business combination" provisions of the
Delaware General Corporation Law. In general, such provisions prohibit a
publicly held Delaware corporation from engaging in various "business
combination" transactions with any Interested Stockholder for a period of three
years after the date of the transaction in which the person became an Interested
Stockholder, unless (i) the transaction is approved by the Board prior to the
date the Interested Stockholder obtained such status; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
by (a) persons who are directors and also officers and (b) employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer or (iii) on or subsequent to such date the "business combination" is
approved by the Board and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the Interested Stockholder.
A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. The statute
could prohibit or delay mergers or other takeover or change in control attempts
with respect to the Company and, accordingly, may discourage attempts to acquire
the Company. The Board has approved any acquisition of shares of Common Stock by
GTCR Fund IV or its affiliates that would otherwise result in GTCR Fund IV or
such affiliates becoming an Interested Stockholder. See "Risk Factors --
Anti-Takeover Effect of Certain Charter, By-Laws and Statutory Provisions."
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Amended and Restated Certificate of Incorporation limits the liability
of directors to the fullest extent permitted by the Delaware General Corporation
Law. This provision may not be amended, altered or repealed without the
affirmative vote of at least 80% of the outstanding shares of the voting stock
of the Company. In addition, the By-Laws provide that the Company shall
indemnify directors and officers of the Company to the fullest extent permitted
by such law. This provision may not be amended, altered or repealed by the
stockholders without the affirmative vote of at least 80% of the outstanding
shares of the voting stock of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First Chicago
Trust Company.
56
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
The Common Stock has only been publicly traded since the Company's initial
public offering of Common Stock on October 9, 1996, and there is no assurance
that a significant public market for the Common Stock will be sustained after
this Offering. Future sales of substantial amounts of shares of Common Stock in
the public market could adversely affect prevailing market prices and could
impair the Company's future ability to raise capital through the sale of its
equity securities.
Upon the completion of the Offering, the Company will have 11,145,893
shares of Common Stock outstanding (11,475,893 shares if the Underwriters'
over-allotment option is exercised in full), approximately 3,546,731 of which
will not have been registered under the Securities Act. Of those shares,
3,214,436 shares will be eligible for sale under Rule 144 subject to certain
volume and other limitations (except for those shares subject to the lockup
agreements described below.)
The Company and certain of its stockholders, who upon the completion of the
Offering will hold shares of Common Stock, have agreed for the Lockup
Period not to sell or otherwise dispose of, and the Company has agreed not to
register, any shares of Common Stock or any securities of the Company which are
substantially similar to the shares of Common Stock, including, but not limited
to, any securities that are convertible into or exchangeable for, or represent
the right to receive, Common Stock or any such substantially similar securities
without the prior written consent of Robertson, Stephens & Company, except for
the shares of Common Stock offered in connection with the Offering.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least one year, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the outstanding Common
Stock (approximately 111,458 shares of Common Stock immediately after the
Offering or 117,458 shares if the Underwriters' over-allotment option is
exercised in full) or (ii) the average weekly trading volume in the Common Stock
in the over-the-counter market during the four calendar weeks preceding the date
on which notice of such sale is filed pursuant to Rule 144. Sales under Rule 144
are also subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A stockholder (or stockholders whose shares are aggregated) who is not
an affiliate of the Company for at least 90 days prior to a sale and who has
beneficially owned "restricted securities" for at least two years is entitled to
sell such shares under Rule 144 without regard to the limitations described
above.
In connection with the 1995 Recapitalization, the Company and the 1995
Stockholders entered into the Registration Agreement. Upon the completion of the
Offering, pursuant to the Registration Agreement, the 1995 Stockholders and
their transferees, who will hold in the aggregate 3,182,553 shares of Common
Stock, are entitled to certain demand and piggy-back registration rights with
respect to such shares of Common Stock, which may be exercised after the
expiration of the Lockup Period. Such rights could be used to force the Company
to file a registration statement with respect to the Common Stock owned by such
persons. In addition, the holders of an additional 136,376 shares of Common
Stock have certain piggy-back registration rights. The existence of the
Registration Agreement and such other registration rights and the perception
that sales of Common Stock could occur thereunder could adversely affect the
market price of the Common Stock and could impair the Company's ability to raise
capital through the sale of equity securities. See "Recent Acquisitions" and
"Certain Relationships and Related Transactions -- Registration Agreement."
57
<PAGE> 59
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, Robertson, Stephens & Company LLC, William Blair & Company,
L.L.C. and The Robinson-Humphrey Company, Inc. (the "Representatives"), have
severally agreed with the Company and the Selling Stockholders, subject to the
terms and conditions of an underwriting agreement (the "Underwriting
Agreement"), to purchase the number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase and pay
for all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC...........................
William Blair & Company, L.L.C. ............................
The Robinson-Humphrey Company, Inc..........................
---------
Total.................................................. 4,000,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that they propose to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not more than $ per share, of
which $ may be re-allowed to other dealers. After the completion of the
Offering, the public offering price, concession and re-allowance to dealers may
be reduced by the Representatives. No such reduction shall affect the amount of
proceeds to be received by the Company and the Selling Stockholders as set forth
on the cover page of this Prospectus.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to 330,000 and 270,000 additional shares of
Common Stock, respectively, to cover over-allotments, if any, at the same price
per share as the Company and the Selling Stockholders will receive for the
4,000,000 shares that the Underwriters have agreed to purchase from the Company
and the Selling Stockholders. To the extent that the Underwriters exercise such
option for shares of Common Stock, each of the Underwriters will have made a
firm commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the 4,000,000 shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the 4,000,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and certain Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
Pursuant to the terms of lockup agreements, the holders of approximately
shares of Common Stock have agreed with the Representatives that during
the Lockup Period, subject to certain limited exceptions, they will not sell or
otherwise dispose of shares of Common Stock, including shares issuable under
options or warrants exercisable during the Lockup Period, any options or
warrants to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock owned directly by such holders or
with respect to which they have the power of disposition without the prior
written consent of Robertson, Stephens & Company.
The Representatives have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in this Offering may
engage in transactions that may stabilize, maintain, or otherwise affect the
market price of the Common Stock, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids. A "stabilizing bid" is a bid
for, or the purchase of, the Common Stock on behalf of the Underwriters for the
purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for, or the
58
<PAGE> 60
purchase of, the Common Stock on behalf of the Underwriters to reduce a short
position incurred by the Underwriters in connection with this Offering. A
"penalty bid" is an arrangement permitting the managing underwriter to reclaim
the selling concession otherwise accruing to an Underwriter or a syndicate
member in connection with this Offering if the Common Stock originally sold by
such Underwriter or syndicate member is purchased by the Underwriters in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
One or more of the Underwriters currently act as market makers for the
Common Stock and may engage in "passive market making" in such securities on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act. Rule 103 permits, upon the satisfaction of certain conditions,
underwriters participating in a distribution that are also Nasdaq market makers
in the security being distributed to engage in limited market making
transactions during the period when Rule 103 would otherwise prohibit such
activity. Rule 103 prohibits underwriters engaged in passive market making
generally from entering a bid or effecting a purchase price that exceeds the
highest bid for those securities displayed on the Nasdaq National Market by a
market maker that is not participating in the distribution. Under Rule 103, each
underwriter engaged in passive market making is subject to a daily net purchase
limitation equal to the greater of (i) 30% of such entity's average daily
trading volume during the two full calendar months immediately preceding, or any
60 consecutive calendar days ending within the ten calendar days preceding, the
date of the filing of the registration statement under the Securities Act
pertaining to the security to be distributed or (ii) 200 shares of common stock.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed upon for the
Company and certain Selling Stockholders by Seyburn, Kahn, Ginn, Bess, Deitch
and Serlin, P.C., Southfield, Michigan. Certain legal matters in connection with
the Common Stock will be passed upon for the Underwriters by Winston & Strawn,
Chicago, Illinois.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company for the years ended December 31, 1995 and 1996, and the statements
of income, stockholders' equity and cash flows of the Predecessor for the year
ended December 31, 1994 appearing in this Prospectus and Registration Statement
have been audited by Coopers & Lybrand LLP, independent accountants, as set
forth in their reports appearing elsewhere herein and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing. The financial statements of ICS for the fiscal year ended October
31, 1996 appearing in this Prospectus and Registration Statement have been
audited by Arthur Andersen LLP, independent accountants, as set forth in this
report appearing elsewhere herein and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C. (the "Commission"), a registration statement on Form S-1
pursuant to the Securities Act with respect to the Common Stock offered hereby
(the "Registration Statement"). This Prospectus does not contain all the
information set forth in the Registration Statement and the schedules and
exhibits thereto, certain items of which are omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus
concerning the provisions of any document filed with the Registration Statement
as exhibits are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the
59
<PAGE> 61
Registration Statement. For further information about the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and to the
financial statements, schedules and exhibits filed as a part thereof. Copies of
the Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and at Seven World Trade Center (13th Floor), New
York, New York 10019. The Commission also makes electronic filings publicly
available on the Internet within 24 hours of acceptance. The Commission's
Internet address is http://www.sec.gov. The Commission's Web site also contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. In addition, such
materials also may be inspected and copied at the offices of the Nasdaq National
Market, 1735 K Street, N.W., Washington, D.C. 20006.
60
<PAGE> 62
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION, FINANCIAL STATEMENTS, AND
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LASON, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................ F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheets
as of June 30, 1997.................................... F-3
Unaudited Pro Forma Condensed Consolidated Statements of
Income
for the Six Months ended June 30, 1997................. F-4
Unaudited Pro Forma Condensed Consolidated Statements of
Income
for the Year ended December 31, 1996................... F-5
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Information.................................. F-6
LASON, INC.
Report of Independent Accountants......................... F-9
Consolidated Balance Sheets as of December 31, 1996 and
1995 and
June 30, 1997 (Unaudited).............................. F-10
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 and for the six months
ended June 30, 1996 and 1997 (Unaudited)............... F-11
Consolidated Statements of Stockholders' Equity for the
years ended
December 31, 1996, 1995 and 1994 and for the six months
ended June 30, 1997.................................... F-12
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 and for the six months
ended June 30, 1996 and 1997 (Unaudited)............... F-13
Notes to Consolidated Financial Statements................ F-14
IMAGE CONVERSION SYSTEMS, INC.
Report of Independent Accountants......................... F-24
Balance Sheets as of October 31, 1996 and April 30, 1997
(Unaudited)............................................ F-25
Statement of Operations for the year ended October 31,
1996 and
for the six months ended April 30, 1996 and 1997
(Unaudited)............................................ F-26
Statement of Changes in Shareholders' Equity.............. F-27
Statements of Cash Flows for the year ended October 31,
1996 and
for the six months ended April 30, 1996 and 1997
(Unaudited)............................................ F-28
Notes to Financial Statements............................. F-29
</TABLE>
F-1
<PAGE> 63
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet has
been prepared based upon the historical consolidated balance sheet of Lason as
of June 30, 1997 and the balance sheet as of April 30, 1997 of ICS (See
"Business -- Acquisition Strategy") consummated after June 30, 1997 and gives
effect to (i) such Acquisition, and (ii) the application of the net proceeds
from the Offering (after deducting underwriting discounts and commissions and
estimated expenses of the Offering, but excluding the underwriters'
over-allotment option), as if each had occurred as of June 30, 1997. The
following unaudited pro forma condensed consolidated statements of income for
the six months ended June 30, 1997 and for the year ended December 31, 1996 give
effect to each of the above transactions and to the Acquisitions (See "Notes to
the Unaudited Pro Forma Condensed Consolidated Financial Information") as if
each had occurred as of January 1, 1996. Pro forma adjustments are described in
the accompanying notes.
The unaudited pro forma condensed consolidated financial information should
be read in conjunction with "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus. The unaudited pro forma condensed consolidated statements of
income are not necessarily indicative of the actual results of operations that
would have been reported if the events described above had occurred as of
January 1, 1996, nor do such statements purport to indicate the results of
future operations of Lason. Furthermore, the pro forma results do not give
effect to all cost savings or incremental costs, if any, which may occur as a
result of the integration and consolidation of the acquisitions. In the opinion
of management, all adjustments necessary to present fairly such unaudited pro
forma condensed consolidated financial statements have been made.
F-2
<PAGE> 64
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
PRO FORMA FOR
ADJUSTMENTS AS ADJUSTED ADJUSTMENTS ACQUISITION
ICS FOR FOR FOR THE AND THE
LASON ACQUISITION(1) ACQUISITION ACQUISITIONS OFFERING OFFERING
-------- -------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets................. $ 36,470 $ 4,752 $ 41,222 $ 12,890 B $ 54,112
Property and equipment, net.... 11,286 3,821 15,107 -- 15,107
Intangible, net................ 56,975 7,001 $ 6,867 A 70,843 -- 70,843
Other Assets................... 1,996 179 -- 2,175 -- 2,175
-------- ------- ------- -------- -------- --------
Total Assets............... $106,727 $15,753 $ 6,867 $129,347 $ 12,890 $142,237
======== ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion, long term
debt......................... $ 4,529 $(4,529)
Other current liabilities...... $ 11,445 2,558 -- A $ 14,003 $ 14,003
-------- ------- ------- -------- --------
Total Current
Liabilities.............. 11,445 7,087 (4,529) 14,003 -- 14,003
Long term Debt, less current
portion...................... 27,400 6,191 12,709 A 46,300 $(46,300) B
Minority interest.............. 355 -- -- 355 -- 355
Other Liabilities.............. 2,915 -- -- 2,915 -- 2,915
-------- ------- ------- -------- -------- --------
Total Liabilities.......... 42,115 13,278 8,180 63,573 (46,300) 17,273
Put Option..................... 1,060 1,060 -- 1,060
Redeemable Preferred Stock..... -- 2,118 (2,118) A -- --
Common Stock................... 89 1 (1) A 89 22 B 111
Additional paid in capital..... 54,577 1,468 (306) A 55,739 59,168 B 114,907
Stock Warrants................. -- 543 (543) A -- -- --
Retained Earnings.............. 8,886 (1,655) 1,655 A 8,886 -- 8,886
-------- ------- ------- -------- -------- --------
Total Stockholders'
Equity................... 63,552 2,475 (1,313) 64,714 59,190 123,904
-------- ------- ------- -------- -------- --------
Total Liabilities and
Stockholders' Equity..... $106,727 $15,753 $ 6,867 $129,347 $ 12,890 $142,237
======== ======= ======= ======== ======== ========
</TABLE>
- ---------------
(1) Balance sheet as of April 30, 1997, as ICS has an October 31 fiscal year
end.
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-3
<PAGE> 65
LASON, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ICS OTHER AS ADJUSTED
LASON ACQUISITION ACQUISITIONS(1) ADJUSTMENTS LASON
------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, net of postage................... $53,658 $ 8,532 $2,434 $64,624
Cost of revenues........................... 37,147 5,625 1,387 44,159
------- ------- ------ -------
Gross profit............................. 16,511 2,907 1,047 20,465
Selling, general and administrative
expenses................................. 8,395 3,702 702 12,799
Compensatory option expense................ 109 -- -- 109
Amortization of intangibles................ 1,041 -- -- $ 353C 1,394
------- ------- ------ ------ -------
Income from operations................... 6,966 (795) 345 (353) 6,163
Other income............................... -- -- 21 -- 21
Interest expense........................... (740) (543) (6) 1,283D (6)
------- ------- ------ ------ -------
Total other income (expense)........... (740) (543) 15 1,283 15
------- ------- ------ ------ -------
Income before minority interest and
provision for income taxes............... 6,226 (1,338) 360 930 6,178
Minority interest.......................... (98) -- -- -- (98)
Provision for income taxes................. (2,250) -- (2) 16E (2,236)
------- ------- ------ ------ -------
Net income (loss).......................... $ 3,878 $(1,338) $ 358 $ 946 $ 3,844
======= ======= ====== ====== =======
Pro forma earnings per share............... G $ .34
=======
Weighted average common and common
equivalent shares outstanding............ G 11,380
-------
</TABLE>
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-4
<PAGE> 66
LASON INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------
ICS OTHER AS ADJUSTED
LASON ACQUISITION ACQUISITIONS ADJUSTMENTS LASON
------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues, net of postage............... $69,937 $20,049 $22,409 $112,395
Cost of revenues....................... 47,587 12,577 12,773 72,937
------- ------- ------- --------
Gross profit......................... 22,350 7,472 9,636 39,458
Selling, general and administrative
expenses............................. 12,628 6,572 7,667 $(2,427)F 24,440
Compensatory option expense............ 936 -- -- -- 936
Amortization of intangibles............ 1,121 -- 9 1,115C 2,245
------- ------- ------- ------- --------
Income from operations............... 7,665 900 1,960 1,312 11,837
Other income, net...................... 71 -- 53 -- 124
Interest expense....................... (1,831) (1,217) (7) 3,048D (7)
------- ------- ------- ------- --------
Total other income (expense)......... (1,760) (1,217) 46 3,048 117
Income before minority interest and
provision for income taxes........... 5,905 (317) 2,006 4,360 11,954
Minority interest...................... (71) -- -- -- (71)
Provision for income taxes............. (2,103) -- (77) (2,057)E (4,237)
------- ------- ------- ------- --------
Net income (loss).................... $ 3,731 $ (317) $ 1,929 $ 2,303 $ 7,646
======= ======= ======= ======= ========
Pro forma earnings per share........... G $ .84
========
Weighted average common and common
equivalent shares outstanding........ G 9,131
--------
</TABLE>
The accompanying Notes are an integral part of these
unaudited pro forma condensed consolidated financial statements.
F-5
<PAGE> 67
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
In January 1997, Lason acquired all of the outstanding common stock of
Churchill Communications Corporation ("Churchill") for $7.5 million in cash and
72,499 shares of the Company's common stock valued at approximately $1.5
million.
In February 1977, Lason Systems, Inc., Southeast ("LSE"), a wholly-owned
subsidiary of Lason, acquired all of the outstanding common stock of Alpha
Imaging, Inc. and Alpha Micro Graphics Supply, Inc. (affiliated companies and
together "Alpha") for $2.1 million in cash and 11,517 shares of the Company's
common stock valued at approximately $237,000.
In March 1997, Lason acquired all of the outstanding common stock of
Premier Copy Group, Inc. ("Premier") for $2.7 million in cash and forgiveness of
a note receivable of approximately $55,500. Premier specializes in litigation
support and document management services to the legal and commercial markets in
the Atlanta market. The purchase price is subject to possible adjustment (i)
based on Premier's net worth as of March 31, 1997, and (ii) based on
satisfactory performance of certain activities set forth in employment
agreements. In connection therewith, a portion of the purchase price is held in
escrow to be released no later than September 30, 1997. The purchase price
contingency, if any, will be recorded as an adjustment to the purchase price
when the contingency is resolved.
In March 1997, Lason also acquired all of the outstanding common stock of
Automated Enterprises, Inc. ("AEI") for $5.9 million in cash and 31,008 shares
of the Company's common stock valued at approximately $655,000. The stock
purchase agreement provides for an additional payment to the selling shareholder
if AEI's financial performance for the years ending December 31, 1997 and
December 31, 1998 exceeds a specified target. The additional payment, if any,
would be paid both in cash and shares of the Company's common stock. In the
event of a change of control or the termination of the employment of the selling
shareholder other than for cause, the selling shareholder can require the
Company to pay $1.6 million in cash in full payment of the Company's additional
payment obligation. Purchase price contingencies, if any, will be recorded as
adjustments to the purchase price when the contingencies are resolved.
In June 1997, Lason acquired all of the outstanding common stock of
Corporate Copies, Inc. ("CCI") for $1.6 million in cash.
In June 1997, LSE acquired all of the outstanding common stock of American
Micro-Image, Inc. ("AMII") for $420,410 in cash and 4,453 shares of the
Company's common stock valued at approximately $105,000.
In July 1997, Lason acquired 100% of the outstanding common stock of Image
Conversion Systems, Inc. ("ICS") for approximately $18.9 million in cash and
47,441 shares of the Company's common stock valued at approximately $1.1
million. ICS is a leading provider of services to convert documents to
electronic and other media and has operations in eight states.
The shares of common stock issued in connection with the acquisition of ICS
are (i) being held in escrow as collateral to indemnify the Company if certain
contingencies occur within twelve months from the date of the acquisition and
(ii) subject to forfeiture if ICS does not achieve certain operating income in
1997 and in 1998. Further, if the operating income of ICS for such periods
exceeds targeted levels, certain selling stockholders have the opportunity to
earn an aggregate bonus equal to approximately $3.0 million payable two-thirds
in cash and one-third in shares of the Company's common stock during 1997 and
1998. The shares of common stock are subject to an eighteen month lock-up
agreement which restricts the owner's ability to sell such shares. The Company
has agreed to register the common stock subsequent to the lock-up period.
Purchase price contingencies, if any, will be recorded as adjustments to the
purchase price when the contingencies are resolved.
F-6
<PAGE> 68
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
BALANCE SHEET
The excess of the purchase price and liabilities assumed over the book
value of the net assets acquired for ICS has been allocated to the tangible and
intangible assets based on Lason's estimate of the fair market value of the net
assets acquired. The allocation of the excess purchase price paid for ICS is as
follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Book value of net assets acquired, after repayment of
assumed debt.............................................. $ 6.2
Allocation of purchase price in excess of acquired assets:
Goodwill.................................................. 13.8
-----
$20.0
Plus liabilities assumed.................................... 2.6
-----
Total Purchase Price................................. $22.6
=====
</TABLE>
The accompanying unaudited pro forma condensed consolidated balance sheet
as of June 30, 1997 has been prepared as if ICS acquisition had been consummated
as of June 30, 1997 and includes:
(A) a pro forma adjustment has been made to:
- record goodwill related to the ICS acquisition
- repay the existing ICS debt with proceeds from the Company's
Credit Agreement
- record the additional debt related to the acquisition of ICS
- present the issuance of 47,441 shares of common stock valued at
approximately $1.2 million related to the acquisition of ICS
- Eliminate ICS's historical equity balances
(B) a pro forma adjustment has been recorded to present the
application of the net proceeds of the offering, assuming additional
offering expenses of $500,000
STATEMENT OF INCOME
The accompanying unaudited pro forma condensed consolidated statements of
income for the six months ended June 30, 1997 and for the year ended December
31, 1996 presents the results as though each acquisition had been consummated on
January 1, 1996. All of the acquisitions, except ICS, have a December 31 fiscal
year end. ICS's fiscal year end was October 31. Accordingly, ICS's results of
operations are included for the twelve months ended October 31, 1996 and for the
six months ended April 30, 1997.
The accompanying unaudited pro forma condensed consolidated statements of
income for the six months ended June 30, 1997 and for the year ended December
31, 1996 have been prepared by combining the historical results for the Company
and, where applicable, the Acquisitions for such respective periods and include
the following adjustments:
(C) Adjustments for the six months ended June 30, 1997 and for the
year ended December 31, 1996 have been made to increase amortization by
$1,237,000 and $353,000, respectively, related to purchase price allocated
to goodwill and noncompete covenants, as if the Acquisitions had occurred
as of January 1, 1996. Goodwill is amortized over 30 years.
F-7
<PAGE> 69
LASON, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
(D) Pro forma adjustments for the six months ended June 30, 1997 and
for the year ended December 31, 1996 have been made to reverse interest
expense of $3,048,000 and $1,283,000, respectively, on debt retired by the
Company using a portion of the estimated net proceeds of $46.3 million.
(E) Certain of the acquisitions were S-Corporations and, accordingly,
were not subject to federal or state income taxes. The pro forma provision
for income taxes has been computed as if the acquisitions were subject to
federal and state corporate income taxes for the periods presented based on
the statutory tax rate then in effect. A tax benefit at a 34% statutory
rate has been calculated for ICS assuming the benefit was used in Lason's
consolidated tax return for the periods presented. Additionally, the pro
forma adjustments have been tax effected at a 34% federal statutory note.
(F) Pro forma adjustment for the year ended December 31, 1996 has been
made to reduce selling general and administrative expenses by approximately
$2,427,000 to eliminate specific expenses that would not have been incurred
had the Acquisitions occurred as of January 1, 1996. Such cost savings
relate to the reduction of certain management salaries based on signed
employment agreements. Additional cost savings that the Company expects to
realize through integration of the Acquisitions into Lason operations have
not been included.
(G) Pro forma net income per common share is computed by dividing pro
forma net income by the weighted average common share and common share
equivalents outstanding.
The pro forma weighted average common shares present as outstanding at
January 1, 1996, the 2,200,000 offering shares and the 166,918 shares
issued as consideration with respect to the acquisitions of Churchill,
Alpha, AEI, AMII and ICS.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Pro forma common shares and common share equivalents
outstanding............................................... 11,380,451 9,131,167
========== =========
</TABLE>
F-8
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Lason, Inc.
We have audited the accompanying consolidated balanced sheets of Lason,
Inc. (the "Company") as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 1996. We have also audited the
accompanying statements of income, stockholders' equity and cash flows of Lason
Systems, Inc. (the "Predecessor") for the year ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lason, Inc.
as of December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Detroit, Michigan
March 26, 1997
F-9
<PAGE> 71
LASON, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash........................................................ $ 103 $ 79 $ 1,727
Accounts receivable (net)................................... 11,090 24,546 27,412
Supplies.................................................... 1,245 2,273 2,580
Prepaid expenses and other.................................. 2,021 4,213 4,751
------- ------- --------
Total current assets...................................... 14,459 31,111 36,470
Computer equipment and software............................. 1,430 2,735 1,723
Production and office equipment............................. 1,237 5,416 10,244
Leasehold improvements...................................... 695 1,010 1,451
Other....................................................... 124 644 1,089
------- ------- --------
3,486 9,805 14,507
Less: Accumulated depreciation............................ (978) (2,184) (3,221)
------- ------- --------
Net property and equipment................................ 2,508 7,621 11,286
Deferred income taxes....................................... 2,817 2,571 1,996
Goodwill (net of accumulated amortization of $572, $1,482
and $2,393 at December 31, 1995 and 1996 and June 30,
1997, respectively)....................................... 16,848 35,911 55,282
Other intangibles (net of accumulated amortization of $105,
$274 and $388 at December 31, 1995 and 1996 and June 30,
1997, respectively)....................................... 677 1,332 1,693
------- ------- --------
TOTAL ASSETS.............................................. $37,309 $78,546 $106,727
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses............................................ $ 3,004 $ 4,199 $ 3,648
Current portion of long-term debt........................... 2,000 -- --
Accounts payable............................................ 2,744 4,751 4,268
Customer deposits........................................... 914 3,706 2,615
Deferred income taxes....................................... 656 1,529 914
------- ------- --------
Total current liabilities................................. 9,318 14,185 11,445
Long-term debt, less current portion........................ 11,500 -- --
Revolving credit line borrowings............................ 7,277 4,101 27,400
Minority interests.......................................... -- 257 355
Other liabilities........................................... -- 1,937 2,915
------- ------- --------
TOTAL LIABILITIES AND MINORITY INTERESTS.................. 28,095 20,480 42,115
------- ------- --------
Common stock with a put option.............................. -- 1,060 1,060
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 20,000,000 shares authorized,
5,692,040, 8,610,246 and 8,896,452 shares issued and
outstanding at December 31, 1995 and 1996 and June 30,
1997, respectively........................................ 57 86 89
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued and outstanding at December 31,
1996 and June 30, 1997; 1,000,000 shares authorized, none
issued and outstanding at December 31, 1995............... -- -- --
Additional paid-in capital.................................. 8,443 51,912 54,577
Loans to stockholders....................................... (1,256) -- --
Retained earnings........................................... 1,970 5,008 (8,886)
------- ------- --------
TOTAL STOCKHOLDERS' EQUITY................................ 9,214 57,006 63,552
------- ------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $37,309 $78,546 $106,727
======= ======= ========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-10
<PAGE> 72
LASON, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
----------- ------------------
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net of postage of $15,276, $20,672,
$29,672, $20,983 and $12,264 for the year
ended December 31, 1994, 1995, and 1996,
and the six months ended June 30, 1996 and
1997, respectively......................... $41,151 $46,605 $69,937 $27,089 $53,658
Cost of revenues............................. 27,238 31,227 47,587 17,696 37,147
------- ------- ------- ------- -------
Gross profit............................... 13,913 15,378 22,350 9,393 16,511
Selling, general and administrative
expenses................................... 8,377 9,406 12,628 5,256 8,395
Compensatory stock option expense............ -- 308 936 160 109
Amortization of intangibles.................. 266 817 1,121 380 1,041
------- ------- ------- ------- -------
Income from operations..................... 5,270 4,847 7,665 3,597 6,966
Interest expense 185 1,760 1,831 903 747
Other income................................. (21) (66) (71) (53) (7)
------- ------- ------- ------- -------
Income before income taxes and minority
interest in net income of
subsidiaries............................ 5,106 3,153 5,905 2,747 6,226
Provision for income taxes................... -- 1,139 2,103 964 2,250
------- ------- ------- ------- -------
Income before minority interest in net
income of subsidiaries.................. 5,106 2,014 3,802 1,783 3,976
Minority interest in net income of
subsidiaries............................... -- -- 71 28 98
------- ------- ------- ------- -------
Net income................................. $ 5,106 $ 2,014 $ 3,731 $ 1,755 $ 3,878
======= ======= ======= ======= =======
Earnings per share........................... $ 0.33 $ 0.55 $ 0.28 $ 0.43
======= ======= ======= =======
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-11
<PAGE> 73
LASON, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN LOANS TO RETAINED
SHARES AMOUNT CAPITAL STOCKHOLDERS EARNINGS TOTAL
------ ------ ---------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balances January 1, 1994.......... 605,000 $ 6 $ 163 $ -- $ 6,398 $ 6,567
Distributions to shareholders..... -- -- -- -- (5,218) (5,218)
Issuance of shares of common
stock........................... 15,500 -- 168 -- -- 168
Net income........................ -- -- -- -- 5,106 5,106
--------- --- -------- ------- ------- --------
Balances at December 31, 1994..... 620,500 $ 6 $ 331 $ -- $ 6,286 $ 6,623
========= === ======== ======= ======= ========
COMPANY
Balances January 1, 1995 (see
Notes 1 and 5).................. 5,692,040 $57 $ 8,135 $(1,300) $ -- $ 6,892
Net income........................ -- -- -- -- 2,014 2,014
Compensatory stock option
expense......................... -- -- 308 -- -- 308
Forgiveness of shareholder
loans........................... -- -- -- 44 (44) --
--------- --- -------- ------- ------- --------
Balances at December 31, 1995..... 5,692,040 57 8,443 (1,256) 1,970 9,214
Net income........................ -- -- -- -- 3,731 3,731
Increase in shareholder loans..... -- -- -- (65) -- (65)
Compensatory stock option
expense......................... -- -- 936 -- -- 936
Issuance of shares of common
stock........................... 3,610,253 36 54,291 -- -- 54,327
Redemption of shares of common
stock........................... (692,047) (7) (11,758) -- -- (11,765)
Repayment of shareholder loans.... -- -- -- 628 -- 628
Forgiveness of shareholder
loans........................... -- -- -- 693 (693) --
--------- --- -------- ------- ------- --------
Balances at December 31, 1996..... 8,610,246 86 51,912 -- 5,008 57,006
Net income........................ -- -- -- -- 3,878 3,878
Compensatory stock option
expense......................... -- -- 109 -- -- 109
Issuance of shares of common stock
for acquisitions................ 119,477 1 2,489 -- -- 2,490
Stock options exercised........... 166,729 2 67 -- -- 69
--------- --- -------- ------- ------- --------
Balances at June 30, 1997
(unaudited)..................... 8,896,452 $89 $ 54,577 $ -- $ 8,886 $ 63,552
========= === ======== ======= ======= ========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements
F-12
<PAGE> 74
LASON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Company Predecessor
------------------ ----------- Six Months Ended
Years Ended December 31, June 30,
-------------------------------- -------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 5,106 $ 2,014 $ 3,731 $ 1,716 $ 3,878
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 1,238 1,817 2,327 864 2,078
Compensatory stock option expense............... -- 308 936 176 109
(Gain) loss on disposal of fixed assets......... 12 23 (20) (6) (4)
Deferred income taxes........................... -- 781 1,119 108 (40)
Changes in operating assets and liabilities net of
effects from acquisitions:
Accounts receivable............................. (498) (2,695) (9,282) (737) (42)
Supplies........................................ (83) (384) (562) (114) (241)
Prepaid expenses and other...................... (255) (698) (3,019) 9 (611)
Accrued expenses and other liabilities.......... 218 89 2,616 96 (4,043)
Minority interests.............................. -- -- 71 308 98
------- -------- --------- -------- --------
Net cash (used in) provided by operating
activities................................... 5,738 1,255 (2,083) 2,420 1,182
------- -------- --------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for net assets of acquired businesses, net
of cash acquired.................................. (1,028) (1,430) (17,137) (1,608) (19,226)
Proceeds from sales of fixed assets................. -- 713 54 33 164
Purchase of fixed assets............................ (758) (1,126) (4,611) (1,202) (3,837)
Other............................................... (33) -- -- -- --
------- -------- --------- -------- --------
Net cash used in investing activities........... (1,819) (1,843) (21,694) (2,777) (22,899)
------- -------- --------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving line of credit.............. -- 35,883 112,199 30,148 63,343
Repayments on revolving line of credit.............. -- (34,607) (115,375) (28,179) (40,044)
Net proceeds from issuance of shares of common
stock............................................. -- -- 53,001 -- --
Borrowings on acquisition credit facility........... -- -- 17,312 -- --
Repayments on acquisition credit facility........... 168 -- (17,312) -- --
Principal payments on long-term debt................ (243) (1,500) (13,500) (1,000) --
Redemption of shares of common stock................ -- -- (11,765) -- --
Principal payments on lease liabilities and
other debt........................................ -- -- (1,435) -- --
Distributions to shareholders....................... (5,218) -- -- -- --
Proceeds from short-term borrowings, net............ 1,200 -- -- -- --
Proceeds from long-term debt........................ 203 -- -- -- --
Proceeds from settlement of shareholder loans....... -- -- 628 -- --
Proceeds from exercise of employee stock options.... -- -- 5 66
------- -------- --------- -------- --------
Net cash provided by (used in) financing
activities................................... (3,890) (224) 23,753 974 23,365
------- -------- --------- -------- --------
Net (decrease) increase in cash..................... 29 (812) (24) 617 1,648
Cash at beginning of period......................... 73 915 103 103 79
------- -------- --------- -------- --------
Cash at end of period............................... $ 102 $ 103 $ 79 $ 720 $ 1,727
======= ======== ========= ======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest........................................ $ 181 $ 1,329 $ 2,141
======= ======== =========
Income taxes.................................... $ -- $ 1,000 $ 1,617
======= ======== =========
</TABLE>
The accompanying Notes are an integral part of the consolidated financial
statements.
F-13
<PAGE> 75
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND CAPITALIZATION
Lason, Inc. (formerly Lason Holdings, Inc. the "Company"), a Delaware
corporation, was incorporated on January 5, 1995. The Company's equity was
comprised of $10 million of Class B common stock and approximately $1 million of
Class A-1 common stock. The Company contributed the funds to Lason Acquisition
Corporation, a non-operating subsidiary. On January 17, 1995 the cash, in
addition to $21 million of bank borrowings, was used to acquire the assets and
assume certain liabilities of Lason Systems, Inc. ("Predecessor") and provide
working capital. Subsequent to the acquisition, Lason Acquisition Corporation
changed its name to Lason Systems, Inc. ("Lason") and continued the business
operations of the Predecessor. Prior to the acquisition, three shareholders
owned 93.8 percent of the common stock of the Predecessor. As part of the
acquisition, the same three shareholders ("continuing shareholders")
collectively acquired 93.8 percent of the Class A-1 common stock which
represented a 46.9 percent aggregate interest of all outstanding classes of
common stock in Lason at the time.
The acquisition was accounted for as a purchase and, accordingly, at such
date the Company recorded the assets and liabilities assumed at their estimated
fair values. The excess of the purchase price over the fair value of net assets
acquired totaling $16.8 million was allocated to goodwill and is being amortized
over 30 years.
Pursuant to the consensus of the Emerging Issues Task Force Issue Number
88-16, "Basis in Leveraged Buyout Transactions," goodwill was reduced by
approximately $8.6 million representing the continuing shareholders' residual
interest in the Company with a corresponding charge against stockholders'
equity. The reduction in stockholders' equity represents a temporary difference
between the tax basis and assigned book value of goodwill that will result in
future tax deductions. A deferred Federal income tax asset was recorded and was
credited to stockholders' equity (see Note 7).
The aggregate purchase price and its allocation to the historical assets
and liabilities of the Company as of January 17, 1995 were as follows:
<TABLE>
<S> <C>
Cost to acquire net assets of the Predecessor............... $31,445
Adjustment to value continuing shareholders' interest at
predecessor basis......................................... (8,652)
-------
$22,793
=======
Allocation of purchase price:
Net assets acquired....................................... $ 5,968
Goodwill.................................................. 16,825
-------
Total purchase price allocated......................... $22,793
=======
</TABLE>
2. OPERATIONS AND CUSTOMER CONCENTRATION
The Company provides integrated outsourcing services for document
management, records management and business communications. These services
include high-volume optical and digital printing, facility management operations
at customer sites, converting inputs into digital formats and direct mailing,
among others. The Company primarily serves customers in the automotive,
financial services, healthcare and professional services industries.
Transactions with various divisions of one domestic automotive manufacturer
accounted for approximately 55 percent, 49 percent and 32 percent of the
Company's consolidated net revenues for the years ended December 31, 1994, 1995
and 1996, respectively. Receivables from that customer were approximately $3.4
million, and $7.2 million as of December 31, 1995 and 1996, respectively.
Transactions with various divisions of another domestic automotive manufacturer
totaled approximately 12 percent, 12 percent and 19 percent of the Company's
consolidated net revenues for the years ended December 31, 1994, 1995 and 1996,
respectively. In addition, the Company had receivables outstanding from this
second customer of approximately $1.7 million and $3.8 million as of December
31, 1995 and
F-14
<PAGE> 76
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1996, respectively. The Company also had various transactions with a third
domestic automotive manufacturer which were not a significant percentage of
total consolidated net revenues for each of the three years ended December 31,
1996.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany transactions have
been eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates. Certain amounts in the prior year consolidated financial statements
have been reclassified to conform with the current year presentation.
REVENUE RECOGNITION
Revenues are recorded when the services are rendered. Revenues are
presented in the consolidated statements of income net of postage because the
cost of postage is passed through to the customer.
SUPPLIES
Supplies are valued at cost, which approximates market, with cost
determined using the first-in, first-out method.
PROPERTY AND EQUIPMENT
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and Assets to be Disposed of", was
issued in March, 1995 and was effective for fiscal years beginning after
December 15, 1995. That statement established standards for measuring impairment
losses of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and those to be disposed of. The adoption of
SFAS No. 121 had no impact on the Company's financial condition, results of
operations or cash flow for the year ended December 31, 1996.
Property and equipment, including significant improvements, are recorded at
cost. Expenditures for normal repairs and maintenance are charged to operations
as incurred. Adjustments of the asset and related accumulated depreciation
accounts are made for retirements of property and equipment with the resulting
gain or loss included in operations.
Assets placed in service prior to January 1, 1996, are depreciated using an
accelerated method over the estimated useful lives of the assets which range
from 5 to 7 years. Assets placed in service after December 31, 1995, are
depreciated using a straight-line method over the estimated lives of the related
assets which range from 5 to 15 years. The change in depreciation methods did
not have a material impact on the Company's results of operations, financial
condition or cash flow for the year ended December 31, 1996.
INTANGIBLE ASSETS
Goodwill is amortized using a straight-line method over 30 years. Other
intangible assets generally consist of covenants-not-to-compete and deferred
financing costs. Covenants-not-to-compete are being amortized using a
straight-line method over the term of the agreement, generally 4 years. Deferred
financing costs are amortized using the interest method over the term of the
associated credit agreement.
F-15
<PAGE> 77
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Annually, the Company evaluates the carrying value of goodwill to determine
if there has been any impairment in value. The methodology used for this
evaluation includes a review of annual operating performance along with
anticipated results for future years. The Company determined that there had been
no impairment in the net carrying amount of goodwill as of December 31, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosures about the fair value of financial instruments whether or
not such instruments are recognized in the balance sheet. Due to the short-term
nature of the Company's financial instruments, other than debt, fair values are
not materially different from their carrying values. Based on the borrowing
rates available to the Company, the carrying value of debt approximated fair
value as of December 31, 1996 and 1995.
EARNINGS PER SHARE
For purposes of computing earnings per share, common stock equivalents
include outstanding stock options. Earnings per share are based on the weighted
average number of common shares and common share equivalents outstanding,
retroactively adjusted for the effect of a 2.5 for 1 common stock split
effective October 15, 1996 (see Note 5).
The weighted average common shares and common share equivalents outstanding
include as outstanding to the date of redemption (October 15, 1996), 692,047
shares of common stock which would have been sold at the initial offering price
of $17.00 per share to fund the redemption of such common stock owned by the
former Class B shareholders.
The weighted average common shares and common share equivalents outstanding
were 6,192,292 and 6,764,249 for the years ended December 31, 1995 and 1996,
respectively.
Earnings per share are not presented for the Predecessor for the year ended
December 31, 1994 as such information is not representative of the capital
structure of the Company.
4. ACQUISITIONS
From June 1995 through December 31, 1996, Lason completed the acquisition
of either substantially all of the assets or a controlling stock ownership
interest in eight companies. The stock acquisitions included acquiring 65% of
the outstanding common stock of Delaware Legal Copy, Inc. in April 1996, 100% of
the outstanding common stock of Information & Image Technology of America, Inc.
and Great Lakes Micrographics Corporation in July 1996, 80% of the outstanding
common stock of Micro-Pro, Inc. and MP Services, Inc. (two affiliated companies,
"Micro-Pro") in July 1996, and 100% of the outstanding common stock of National
Reproductions Corp. ("NRC") in August 1996. Each of the acquisitions was
accounted for as a purchase. Accordingly, the results of operations of the
acquired companies are included in the consolidated results of operations from
the respective date of acquisition.
The selling shareholders of Micro-Pro have retained 20% of the capital
stock of Micro-Pro. Under certain conditions, the Company may purchase the
remaining 20%, or the selling shareholders may compel the Company to purchase
the remaining 20% of the capital stock of Micro-Pro at a future date. The
Company's call option will expire in January, 1998 and the selling shareholders
put option will expire in January, 1999. The acquisition of the remaining 20% of
Micro-Pro, either through the Company's call option or the selling shareholders
put option, will be accounted for as the acquisition of a minority interest
using the purchase method of accounting on the date the shares are acquired.
The selling shareholders of Delaware Legal Copy, Inc. ("Delaware") have
retained 35% of the capital stock of Delaware. Under certain conditions, the
Company may purchase the remaining 35%, or the selling shareholders may compel
the Company to purchase the remaining 35% of the capital stock of Delaware at a
future date. The Company's call option will expire in September, 1997 and the
selling
F-16
<PAGE> 78
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
shareholders put option will expire in September, 1998. The acquisition of the
remaining 35% of Delaware, either through the Company's call option or the
selling shareholders put option, will be accounted for as the acquisition of a
minority interest using the purchase method of accounting on the date the shares
are acquired.
The purchase price for the acquisition of Information and Image Technology
of America, Inc. ("IITA") may be adjusted based on IITA's financial performance
for the period March 1, 1996 through February 28, 1997. If IITA's financial
performance exceeds a specified target, the purchase price will be increased by
a percentage equal to the percentage by which IITA's actual performance exceeded
the target, but not more than $945,000. If the financial performance is below
the target, the purchase price will be decreased by a percentage equal to the
percentage by which IITA's actual performance was below the target, but not more
than $472,000. The purchase price contingency will be recorded as an adjustment
to the purchase price when the contingency is resolved. A portion of the
consideration paid to the selling shareholders for the capital stock of IITA was
74,114 shares of the Company's common stock valued at $1,259,938.
A portion of the consideration paid to the two selling shareholders for the
capital stock of Great Lakes Micrographics Corporation ("Great Lakes") was
62,352 shares of the Company's common stock valued at $1,060,000. Each of the
selling shareholders have the right, until January 17, 1999, to require the
Company to purchase all of the stock issued in connection with the acquisition
for up to $1,060,000 ($17.00 per share). The resulting put option has been
recorded as common stock issued with a put option and is not included in
stockholders' equity in the consolidated balance sheet as of December 31, 1996.
In connection with acquisition of NRC, the Company issued a $400,000
promissory note as partial consideration for the capital stock acquired. The
note was convertible, at any time up to October 1, 1997, into 23,529 shares of
the Company's common stock. The holder of the note converted it in February,
1997.
The aggregate purchase price for the acquisitions completed for the year
ended December 31, 1996, excluding liabilities assumed, was approximately $19.9
million. The purchase price was allocated to the assets acquired and liabilities
assumed based on the related fair values at the date of acquisition. The excess
of the aggregate purchase price over the fair values of assets acquired and
liabilities assumed has been allocated to goodwill and is being amortized on a
straight-line method over 30 years.
In conjunction with these acquisitions, liabilities assumed and other
non-cash consideration was as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired............................... $ 6,213
Goodwill.................................................... 19,980
Covenant not-to-compete..................................... 200
Cash paid in consideration for companies acquired........... (17,137)
Stock issued in consideration for companies acquired........ (2,320)
Promissory note issued in consideration for company
acquired.................................................. (400)
--------
Liabilities assumed......................................... $ 6,536
========
</TABLE>
The following table summarizes pro forma unaudited results of operations as
if each of the acquisitions completed during 1996 had occurred at the beginning
of each period presented (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues............................................ $75,052 $84,525
Income before income taxes.......................... 3,841 6,667
Net income.......................................... 2,408 4,156
Earnings per share.................................. $ 0.39 $ 0.61
</TABLE>
F-17
<PAGE> 79
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(UNAUDITED) JUNE 30, 1997
During the first half of 1997, Lason acquired all the outstanding common
stock of six companies for an aggregate purchase price of $21.7 million. The
acquisitions were financed with $19.2 million of borrowings under the Company's
Credit Agreement and the issuance of 119,477 shares of common stock.
The following table summarizes pro forma unaudited results of operations as
if each of the acquisitions completed during the first six months of 1997 had
occurred at the beginning of each of the periods presented:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Revenues............................................... $36,468 $56,092
Income before income taxes............................. 3,960 6,166
Net income............................................. 2,462 3,835
Earnings per share..................................... $ 0.40 $ 0.42
</TABLE>
5. STOCKHOLDERS' EQUITY
In the fourth quarter of 1996, the Company completed an initial public
offering ("IPO") of 3,450,000 shares of common stock , including the
underwriter's over-allotment option, at $17.00 per share for net proceeds to the
Company of approximately $53.0 million, after deducting underwriting discounts
and other offering expenses. Approximately $41.2 million of the net proceeds was
used to repay outstanding debt under the Company's credit agreement and
approximately $11.8 million was used to redeem 692,047 shares of common stock
held by the Company's largest shareholder.
In connection with and immediately prior to the consummation of the IPO,
each share of Class A common stock was converted into one share of common stock
, each share of Class B common stock was converted into approximately 1.3 shares
of common stock, and the Company's Board of Directors approved a 2.5 for 1
common stock split. The Company's 1995 consolidated financial statements have
been restated for this recapitalization. The authorized capital stock of the
Company now consists of 20,000,000 shares of common stock, par value $.01 per
share and 5,000,000 shares of preferred stock, par value $0.01 per share.
In connection with the acquisition described in Note 1, Lason entered into
a Credit Agreement dated January 17, 1995 with certain shareholders who were
also shareholders in the Predecessor, pursuant to which Lason loaned the
shareholders $1.3 million which was used to pay their tax liability resulting
from the sale of the assets of the Predecessor. In conjunction with the
completion of the IPO in 1996, 50 percent of the then outstanding amounts of the
shareholder loans were forgiven by the Company and charged to retained earnings.
At the same time, the remaining 50 percent of shareholder loans outstanding were
repaid to the Company, along with the related accrued interest to the date of
settlement.
6. LONG-TERM DEBT
On January 17, 1995, Lason entered into a credit agreement with a bank
which included a $10 million revolving line of credit and a $15 million term
loan. Interest on amounts outstanding under the agreement is calculated using
rates determined at the time of borrowing. The Company chooses the applicable
interest rate on each borrowing. Borrowings on the revolving line of credit bear
interest at either the bank's prime rate plus .75 percent or LIBOR plus 2.25
percent. Borrowings on the term loan are collateralized by substantially all of
Lason's assets and bear interest at either the bank's prime rate plus 1.0
percent or LIBOR plus 2.50 percent. Interest payment due dates vary depending on
the rate chosen. Revolving credit availability is based on 85 percent of
eligible accounts receivable.
In July 1996, the credit agreement was amended to include an additional $10
million acquisition credit facility, expiring on the earlier of June 30, 2001 or
an initial public offering by the Company. In addition, in August 1996, Lason
amended the credit agreement to provide for up to an additional $8.5 million of
interim loans, payable upon the earlier of March 31, 1997 or an initial public
offering by
F-18
<PAGE> 80
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
the Company. In August 1996, Lason also amended the credit agreement to increase
the existing $10 million revolving credit facility to $13 million.
Long-term debt outstanding consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
Revolving line of credit due 2001........... $ 7,277 $4,101 $27,400
Term bank loan due 2001..................... 13,500 -- --
Less: current portion....................... (2,000) -- --
------- ------ -------
Total long-term debt...................... $18,777 $4,101 $27,400
======= ====== =======
</TABLE>
The loan agreement contains covenants which, among other things, restricts
the acquisition and disposal of assets, payment of dividends and incurrence of
liabilities and sets minimum requirements for free cash flow and certain
financial ratios. As of December 31, 1996, the loan agreement prohibits Lason
from advancing funds or paying dividends to the Company.
As of December 31, 1996, Lason was in violation of miscellaneous
non-financial covenants. On February 27, 1997, Lason obtained waivers of such
covenant violations.
On February 20, 1997, Lason's Credit Agreement was amended and restated to
provide revolving credit loans in the initial amount of $40 million , which may
be increased to $60 million at Lason's request , and after payment of a
commitment fee and Bank review and approval. The increased borrowing capacity
will be used to finance additional acquisitions of businesses, working capital,
capital expenditures and for other corporate purposes. Borrowings, if any, under
the Credit Agreement will be collateralized by substantially all of Lason's
assets. Lason will not be required to make principal payments prior to 2001, the
term of the loan. Interest on amounts outstanding will be calculated based on
interest rates determined at the time of borrowing. Borrowings will bear
interest at rates ranging from a base percentage rate plus a maximum of 1.25% to
LIBOR plus a maximum of 2.25%, depending on the Company's leverage ratio. The
Credit Agreement contains restrictions on the acquisition of stock or assets,
disposal of assets, incurrence of other liabilities, minimum requirements for
cash flow and certain financial ratios.
(UNAUDITED)
At June 30, 1997, Lason was in compliance with all financial and
nonfinancial covenants.
7. INCOME TAXES
The Company and its qualifying subsidiaries file a consolidated Federal
income tax return. The Federal income tax provision is computed on the
consolidated taxable income of the Company and those subsidiaries.
The components of the income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
---- ----
<S> <C> <C>
Current provision.......................................... $ 358 $ 984
Deferred provision......................................... 781 1,119
------ ------
Total income tax provision............................... $1,139 $2,103
====== ======
</TABLE>
Deferred income taxes represent the net tax effects of temporary
differences between the carrying value amounts of assets and liabilities for
financial reporting purposes and the amounts used for income
F-19
<PAGE> 81
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
tax return purposes. Significant components of the Company's deferred Federal
income tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets related to:
Goodwill................................................. $2,745 $2,624
Depreciation............................................. 146 63
Compensatory stock option expense........................ 111 435
Allowance for doubtful accounts.......................... 27 54
Covenant-not-to-compete amortization..................... 9 30
------ ------
Total deferred tax assets................................ $3,038 $3,206
====== ======
Deferred tax liabilities related to:
Supplies................................................. $ 423 $ 795
Prepaid expenses......................................... 259 787
Goodwill................................................. 194 486
Other.................................................... -- 96
------ ------
Total deferred tax liabilities........................... $ 876 $2,164
====== ======
</TABLE>
The difference between the Company's statutory Federal income tax rate and
its effective Federal income tax rate of 36.1 percent and 35.6 percent for the
years ended December 31, 1995 and 1996, respectively, results primarily from
travel and entertainment expenses and certain goodwill amortization that is not
deductible for Federal income tax purposes.
The Predecessor elected to be taxed as an S-Corporation and, as such, did
not pay corporate income tax. Therefore, no Federal income tax has been recorded
in the consolidated statement of income for the year ended December 31, 1994.
8. STOCK OPTION PLAN
SFAS No. 123 "Accounting for Stock Based Compensation" was issued in
October 1995 and was effective for fiscal years beginning after December 15,
1995. That standard requires significantly more disclosure regarding employee
stock options and encourages companies to recognize compensation expense for
stock-based awards based on the fair value of such awards on the date of grant.
Alternatively, companies may continue to account for such transactions under
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees", provided that disclosures are made regarding the net income and
earnings per share impact as if the value recognition and measurement criteria
of SFAS No. 123 had been adopted. The Company has elected to continue to account
for employee stock options under APB No. 25.
The Company's 1995 stock option plan was adopted by the Board of Directors
and approved by the Company's shareholders in January 1995. A committee composed
of non-employee members of the Board of Directors selects certain key employees
to be participants in the Plan. Under the Plan, the Company may grant up to
1,000,000 shares of common stock.
For certain options granted during 1996 and 1995, the exercise price was
less than the fair value of the Company's stock on the date of grant and,
accordingly, compensation expense is recognized over the vesting period for such
difference. For certain other options granted in 1996, the exercise price
equaled the market price on the date of grant and, therefore, no compensation
expenses was recognized. Options generally vest over a period which ranges from
3 to 5 years from the date of grant and each option's maximum term is generally
7 years from the grant date.
F-20
<PAGE> 82
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The provisions of certain stock option agreements provided for immediate
vesting of those options on the effective date of the IPO. Accordingly, the
Company recorded a non-cash expense of $653,000 during the fourth quarter of
1996 to record the compensation associated with the immediate vesting of those
stock options. Total compensation expense recorded for the years ended December
31, 1995 and 1996 was approximately $308,000 and $936,000, respectively.
Had compensation expense for the Company's stock option plan been
determined based on the fair value at the grant dates for awards, consistent
with the provisions of SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net income
As reported.............................................. $2,014 $3,731
Pro forma................................................ 1,957 3,582
Earnings per share
As reported.............................................. $ 0.33 $ 0.55
Pro forma................................................ 0.32 0.53
</TABLE>
For purposes of computing the pro forma amounts above, the fair value of
each option granted was estimated using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1995 and
1996, respectively: dividend yield of 0.0 percent in both years; expected
volatility of 74 percent in both years; risk free interest rates of 6.39 percent
and 5.98 percent; and expected lives of 4.02 years and 2.43 years.
A summary of the status of the Company's stock option plan is as follows
for each of the years ended December 31:
<TABLE>
<CAPTION>
1995 1996
--------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE SHARES EXERCISE
------ ---------------- ------ ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning year.............. -- $ -- 419,326 $0.40
Granted:
Price = Fair Value....................... -- -- 210,500 16.75
Price < Fair Value....................... 419,326 0.40 166,250 2.40
Exercised.................................. -- -- (23,788) 0.40
Canceled................................... -- (17,045) 0.40
------- -------
Outstanding at end of year................. 419,326 0.40 755,243 5.33
======= =======
Options exercisable at year-end............ 56,818 388,765
Weighted-average fair value of options
granted during the year.................. $2.51 $8.95
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- -----------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/96 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<C> <C> <C> <C> <C> <C>
$ 0.40 - $ 3.19 436,993 5.73 $ 0.40 376,765 $0.40
3.20 - 16.74 107,750 6.36 3.20 12,000 3.20
16.75 - 16.75 210,500 6.96 16.75
------- ----- ------- ------- ------
755,243 6.16 $ 5.33 388,765 $0.56
======= ===== ======= ======= ======
</TABLE>
F-21
<PAGE> 83
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit-sharing plan and trust (the "Plan"). Each
employee who is 21 years of age or older who has worked for the Company for
twelve months and performed 1,000 hours of service or, has an adjusted service
date with the equivalent or greater term of service, is eligible to participate
in the Plan. Eligible participants may contribute not less than 2 percent and up
to 15 percent of their pretax compensation to the Plan. The Plan is contributory
and the Company at its discretion, can match up to 33 percent of eligible
participant contributions not to exceed 9 percent of the participant's earnings.
The Company's match contribution for the years ended December 31, 1994, 1995 and
1996 totaled approximately $156,000, $172,000 and $201,000, respectively.
10. LEASE COMMITMENTS
The Company has various operating lease agreements related primarily to
equipment and buildings. As of December 31, 1996, future minimum rental payments
required under noncancelable operating leases with initial or remaining lease
terms in excess of one year are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 2,877
1998........................................................ 2,797
1999........................................................ 2,617
2000........................................................ 1,974
2001........................................................ 1,422
-------
Total....................................................... $11,687
=======
</TABLE>
In addition, the Company has a number of equipment leases that are on a
month-to-month basis.
Total rent expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $4.5 million, $5.2 million and $6.4 million, respectively.
11. RELATED PARTY TRANSACTIONS
The Company purchases printing services from a company owned by the wife of
the former president and one of the principal shareholders of the Company. For
the years ended December 31, 1996, 1995 and 1994, the Company paid approximately
$1.4 million, $981,000 and $726,000, respectively, for such printing services.
As of December 31, 1996 and 1995, $114,389 and $204,000 was due to that company,
respectively, for printing services, and is included in accounts payable in the
consolidated balance sheet.
The Company leases property and a building from a general partnership in
which the Company's Chairman is the managing partner. Another principal
shareholder of the Company owns 33.33 percent of such partnership and is one of
its partners. For each of the three years ended December 31, 1996, the Company
paid $191,100 in rent to that partnership.
The Company leases certain equipment from a company in which the Company's
Chairman is a 50 percent owner and its president. For the years ended December
31, 1994, 1995 and 1996, the Company paid $30,100, $57,100 and $184,390,
respectively, in rent for such operating leases.
The Company contracts temporary employment services from a company which is
owned by the wife of a senior member of management. The Company paid $2,905 and
$735,670 for the years ended December 31, 1995 and 1996, respectively, for such
services. No amounts were paid to such company for the year ended December 31,
1994.
F-22
<PAGE> 84
LASON, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
The Company believes that all the above transactions were on terms that
were reasonable and competitive. Additional transactions of the nature described
may take place in the ordinary course of business in the future.
12. COMMITMENTS AND CONTINGENCIES
Various claims have been made against the Company in the normal course of
business. Management believes that none of these legal proceedings will have a
material adverse effect on the Company's business, financial condition or
results of operations.
In January and February 1997, the Company was named as co-defendant in
three lawsuits filed in the United States District Court for the Northern
District of Illinois purporting to be class actions and alleging violations of
the Federal Fair Debt Collection Practices Act ("FDCPA") on the part of the
Company in the printing and mailing of collection letters for certain of its
customers. The complaints demand compensatory damages in the amount of one
dollar for each letter sent to members of the purported classes of plaintiffs
and punitive damages. The Company has moved for summary judgment in each of
these lawsuits in part on the grounds that the Company is not a "debt collector"
within the meaning of the FDCPA. Although there can be no assurance as to the
outcome of this litigation, the Company believes that is has meritorious
defenses to the allegations made in the complaints and is defending itself
vigorously.
13. SUBSEQUENT EVENTS
In January, 1997, Lason acquired 100 percent of the outstanding common
stock of Churchill Communications Corporation and 100 percent of the outstanding
common stock of Alpha Imaging, Inc. and Alpha Micro Graphics Supply, Inc.
(affiliated companies). In March, 1997, Lason acquired 100 percent of the
outstanding common stock of Automated Enterprises Inc. and 100 percent of the
outstanding common stock of Premier Copy Group, Inc. The aggregate purchase
price excluding liabilities assumed, was approximately $19.9 million of which
approximately $17.5 million was funded by bank borrowings and approximately $2.4
million through the issuance of shares of the Company's common stock.
14. UNAUDITED -- JUNE 30, 1997 SUBSEQUENT EVENT
In July 1997, Lason acquired 100% of the outstanding common stock of Image
Conversion Systems, Inc. ("ICS") for approximately $18.9 million in cash and
47,441 shares of the Company's common stock valued at approximately $1.1
million. Of the total cash payment, approximately $10.5 million was used to
repay the outstanding debt of ICS and approximately $8.4 million was paid to the
selling shareholders. ICS is a leading provider of services to convert documents
to electronic and other media and has operations in eight states.
The shares of common stock issued in connection with the acquisition of ICS
are (i) being held in escrow as collateral to indemnify the Company if
contingencies set forth in the purchase agreement occur within twelve months
from the date of the acquisition, and (ii) subject to forfeiture if ICS does not
achieve targeted operating income in 1997 and in 1998. Further, if the operating
income of ICS for such periods exceeds targeted levels, certain selling
stockholders have the opportunity to earn an aggregate bonus equal to
approximately $3.0 million payable two-thirds in cash and one-third in shares of
the Company's common stock. The shares of common stock, if earned, are subject
to an eighteen month lock-up agreement which restricts the owner's ability to
sell such shares. The Company has agreed to register the shares of common stock
subsequent to the lock-up period. Purchase price contingencies, if any, will be
recorded as adjustments to the purchase price when the contingencies are
resolved.
The Company expects to register 4.0 million shares of common stock in
August, 1997. A total of 2.2 million shares will be offered by the Company and
1.8 million shares will be offered by certain selling shareholders. The net
proceeds from such offering will be used to repay amounts then outstanding under
the Company's credit agreement and for general corporate purposes, including
working capital and financing of possible acquisitions.
F-23
<PAGE> 85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
IMAGE CONVERSION SYSTEMS, INC.:
We have audited the accompanying balance sheet of IMAGE CONVERSION SYSTEMS,
INC. (a Delaware corporation) as of October 31, 1996, and the related statements
of operations, shareholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Image Conversion Systems,
Inc. as of October 31, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Arthur Andersen & Co. LLP
Chicago, Illinois
July 28, 1997
F-24
<PAGE> 86
IMAGE CONVERSION SYSTEMS, INC.
BALANCE SHEET
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1996 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 154 $ 6
Accounts receivable, net of allowance for doubtful accounts
of $100 and $78 as of October 31, 1996 and April 30, 1997,
respectively........................................... 4,940 3,711
Unbilled revenue.......................................... 255 182
Materials and supplies.................................... 397 400
Prepaid and other assets.................................. 364 453
------- -------
Total current assets................................. 6,110 4,752
Property and equipment, net................................. 3,837 3,821
Goodwill, net of accumulated amortization of $301 and $449
as of October 31, 1996 and April 30, 1997, respectively... 7,149 7,001
Other assets................................................ 119 179
------- -------
Total Assets......................................... $17,215 $15,753
======= =======
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 1,466 $ 1,958
Revolving debt............................................ 2,581 2,571
Bank overdraft............................................ 179 430
Accounts payable.......................................... 746 927
Accrued expenses.......................................... 1,066 688
Accrued payroll and related costs......................... 393 513
------- -------
Total current liabilities............................ 6,431 7,087
Long term debt.............................................. 7,921 6,191
------- -------
Total liabilities.................................... 14,352 13,278
------- -------
SHAREHOLDERS' EQUITY:
Redeemable Preferred stock, Series A; $.01 par value,
$2.72 cumulative, convertible, 100,000 shares
authorized; 54,821 shares issued and outstanding
(entitled in liquidation to $45.60 per share).......... 2,117 2,117
Preferred Stock, Series B; $.01 par value, $1.80
cumulative convertible, 50,000 shares authorized,
31,667 shares issued and outstanding at April 30, 1997
(entitled in liquidation $30 per share)................ -- 1
Common stock; $.01 par value, 150,000 shares authorized
and
30,000 shares issued and outstanding................... 1 1
Paid-in capital........................................... 519 1,468
Redeemable preferred stock warrants....................... 383 383
Redeemable common stock warrants.......................... 160 160
Accumulated deficit....................................... (317) (1,655)
------- -------
Total shareholders' equity........................... 2,863 2,475
------- -------
Total Liabilities and equity......................... $17,215 $15,753
======= =======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-25
<PAGE> 87
IMAGE CONVERSION SYSTEMS, INC.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED APRIL 30
OCTOBER 31, -----------------
1996 1996 1997
----------- ---- ----
(unaudited)
<S> <C> <C> <C>
NET SALES................................................... $20,049 $8,984 $ 8,532
COST OF SALES............................................... 12,577 5,772 5,625
------- ------ -------
Gross profit........................................... 7,472 3,212 2,907
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 6,572 2,375 3,702
------- ------ -------
Income (loss) from operations.......................... 900 837 (795)
INTEREST EXPENSE............................................ 1,217 584 543
------- ------ -------
(Loss) income before income taxes...................... (317) 253 (1,338)
PROVISION FOR INCOME TAXES (Note 6)......................... -- (109) --
------- ------ -------
Net (loss) income...................................... $ (317) 144 $(1,338)
======= ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE> 88
IMAGE CONVERSION SYSTEMS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
PREFERRED PREFERRED STOCK COMMON
STOCK, STOCK, WARRANTS, COMMON STOCK
SERIES A SERIES B SERIES A STOCK WARRANTS
--------------- --------------- --------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, November 1, 1995.......... -- $ -- -- $-- -- $ -- -- $-- -- $ --
Issuance of preferred stock,
Series A........................ 54,821 $2,117 -- -- -- -- -- -- -- --
Issuance of warrants for preferred
stock, Series A................. -- -- -- -- 9,905 383 -- -- -- --
Issuance of common stock.......... -- -- -- -- -- -- 20,000 1 -- --
Issuance of common stock
warrants........................ -- -- -- -- -- -- -- -- 6,400 160
Net loss for the year............. -- -- -- -- -- -- -- -- -- --
------ ------ ------ -- ----- ---- ------ -- ----- ----
Balance, October 31, 1996.......... 54,821 2,117 -- -- 9,905 383 20,000 1 6,400 160
Issuance of preferred stock, Series
B (unaudited)..................... 31,667 1
Net loss for the year
(unaudited).......................
------ ------ ------ -- ----- ---- ------ -- ----- ----
Balance, April 30, 1997
(unaudited)....................... 54,821 $2,117 31,667 $1 9,905 $383 20,000 $1 6,400 $160
====== ====== ====== == ===== ==== ====== == ===== ====
<CAPTION>
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
------- -------- -----
<S> <C> <C> <C>
BALANCE, November 1, 1995.......... $ -- $ -- $ --
Issuance of preferred stock,
Series A........................ -- -- 2,117
Issuance of warrants for preferred
stock, Series A................. -- -- 383
Issuance of common stock.......... 519 -- 520
Issuance of common stock
warrants........................ -- -- 160
Net loss for the year............. -- (317) (317)
------ ------- -------
Balance, October 31, 1996.......... 519 (317) 2,863
Issuance of preferred stock, Series
B (unaudited)..................... 949 950
Net loss for the year
(unaudited)....................... (1,338) (1,338)
------ ------- -------
Balance, April 30, 1997
(unaudited)....................... $1,468 $(1,655) $ 2,475
====== ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE> 89
IMAGE CONVERSION SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30,
YEAR ENDED -------------------
OCTOBER 31, 1996 1996 1997
---------------- -------- -------
(unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income for the period........................ $ (317) $ 144 $(1,338)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities --
Depreciation and amortization........................ 941 427 515
Deferred income taxes................................ -- 109 --
Amortization of debt discount........................ 32 16 16
Change in assets and liabilities, net of the effects
from purchase assets from Anacomp, Inc. --
Accounts receivable, net........................... (1,992) (1,110) 1,229
Unbilled receivables............................... (255) (179) 73
Materials and supplies............................. (29) (27) (3)
Prepaid and other assets........................... (114) (72) (89)
Bank overdraft..................................... 179 -- 251
Accounts payable................................... 564 904 181
Accrued expenses, payroll and related costs........ 1,459 593 (258)
-------- -------- -------
Net cash provided by operating activities.......... 468 805 577
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (793) (108) (341)
Cash paid for assets from Anacomp, Inc., less cash
received
of $3................................................ (14,460) (14,460) --
Change in other assets, net............................. (77) (165) (70)
-------- -------- -------
Net cash used for investing activities............. (15,330) (14,733) (411)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing on long-term debt............... 10,118 9,824 --
Payments on long-term debt.............................. (863) (288) (1,254)
Net proceeds on revolving debt.......................... 2,581 1,564 (10)
Proceeds from issuance of preferred stock............... 2,117 2,117 950
Proceeds from issuance of preferred stock warrants...... 383 383 --
Proceeds from issuance of common stock.................. 520 220 --
Proceeds from issuance of common stock warrants......... 160 160 --
-------- -------- -------
Net cash provided by (used in) financing
activities...................................... 15,016 13,980 (314)
-------- -------- -------
NET INCREASE (DECREASE) IN CASH........................... 154 52 (148)
-------- -------- -------
CASH AND CASH EQUIVALENTS, beginning of period............ -- -- 154
-------- -------- -------
CASH AND CASH EQUIVALENTS, end of period.................. $ 154 $ 52 $ 6
======== ======== =======
NONCASH ACTIVITIES:
Assumption of liabilities in connection with the
purchase of assets from Anacomp, Inc................. $ 282 $ 282 $ --
SUPPLEMENTAL DISCLOSURE:
Cash paid for income taxes.............................. 33 -- --
Cash paid for interest.................................. 1,100 502 460
</TABLE>
The accompanying notes are an integral part of this statement.
F-28
<PAGE> 90
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(DATA WITH RESPECT TO THE SIX MONTHS ENDED
APRIL 30, 1997 AND 1996 ARE UNAUDITED)
1. THE COMPANY'S BUSINESS AND FORMATION
The Company's Business
Image Conversion Systems, Inc. (the Company) provides image scanning and
conversion at 12 sites in 10 states.
In the opinion of management, the unaudited financial statements for the
six-month periods ended April 30, 1997 and 1996, are presented on a basis
consistent with the audited financial statements and contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. The results of operations for interim periods are not necessarily
indicative of results of operations for the full year.
Formation
The Company was formed on November 3, 1995. Effective November 1, 1995 the
Company purchased certain assets and assumed certain liabilities of Anacomp,
Inc. for $14.7 million, including acquisition costs of $1.1 million and the
assumption of $282,000 of liabilities. The purchase price was allocated to
accounts receivable ($2.9 million), other current assets ($0.7 million),
property and equipment ($3.6 million), with the remaining amount ($7.5 million)
being allocated to goodwill. The acquisition was accounted for as a purchase.
The goodwill is being amortized over 30 years and the amortization expense for
1996 was $301,000.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as services are performed.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents and are stated at
cost, which approximates fair market value.
Materials and Supplies
Materials and supplies consist primarily of film and imaging supplies, and
are stated at the lower of cost or market.
Property and Equipment
Property and equipment is carried at historical cost. Major renewals or
betterments are capitalized while routine maintenance and repairs, which do not
improve or extend asset lives, are charged to expense when incurred.
Depreciation is provided on the straight-line method over the useful lives
of the property and equipment and are as follows:
<TABLE>
<S> <C>
Equipment............................................ 7 years
Furniture and fixtures............................... 7 years
Software............................................. 5 years
Leasehold improvements............................... Shorter of the useful life
or the lease term
</TABLE>
F-29
<PAGE> 91
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1996 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
Equipment................................................... $4,031 $4,204
Furniture and fixtures...................................... 110 115
Software.................................................... 264 390
Leasehold improvements...................................... 30 41
------ ------
4,435 4,750
Less- Accumulated depreciation.............................. (598) (929)
------ ------
$3,837 $3,821
====== ======
</TABLE>
4. OTHER ASSETS
Other assets at October 31, 1996 consist primarily of deposits, deferred
financing costs and organization costs. Organization costs are being amortized
over 5 years on a straight-line basis. Deferred financing costs, which were
capitalized in conjunction with the acquisition financing are being amortized
over the period covered by the related financing using the straight-line method,
which is not materially different from the amortization computed using the
effective-interest method.
5. LEASES
The Company has entered into various noncancelable leases for office space
and equipment. Rent expense for 1996 was $729,538.
Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1997................................................... $ 818 $130
1998................................................... 853 130
1999................................................... 788 92
2000................................................... 750 --
2001................................................... 297 --
2002 and thereafter.................................... 14 --
------- ----
Total minimum payments................................. $3,520 352
======= ----
Less: Amount representing interest..................... (75)
----
Present value of minimum lease payments................ $277
====
</TABLE>
F-30
<PAGE> 92
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. INCOME TAXES
The Company recognized no benefit for income taxes as the $113,000 and
$642,000 of deferred tax assets generated in 1996 and the six months ended April
30, 1997, respectively, was entirely offset by the valuation allowance.
The benefit for income taxes differs from that which would be computed by
applying the statutory U.S. federal income tax rate to the loss before taxes.
The following is a summary of the effective tax rate reconciliation:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED
ENDED APRIL 30,
OCTOBER 31, ------------
1996 1996 1997
----------- ---- ----
(unaudited)
<S> <C> <C> <C>
Tax benefit at statutory rate.......................... (34)% 34% (34)%
State income taxes, net of federal income tax
benefit.............................................. (6) 6 (6)
Items not deductible for tax purposes.................. 4 3 1
--- -- ---
(36) 43% (39)
==
Less -- Valuation allowance............................ 36 39
--- ---
0% 0%
=== ===
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences (in thousands):
<TABLE>
<CAPTION>
October 31, April 30,
1996 1997
----------- ------------
(unaudited)
<S> <C> <C>
Differences in depreciation and amortization............ $(242) $(342)
Accruals and reserves not deducted for tax purposes
until paid............................................ 72 63
Net operating losses.................................... 283 920
----- -----
113 642
Less -- Valuation allowance............................. (113) (642)
----- -----
$ 0 $ 0
===== =====
</TABLE>
The Company's net operating losses expire in 2012 and can be utilized only
to the extent the Company achieves taxable income. Management recognized a
valuation allowance to the extent of the net deferred tax asset.
7. REVOLVING DEBT
The Company entered into a $3 million revolving debt agreement with its
senior lender bearing interest at prime (8.25% at October 31, 1996) plus 1.5%.
The balance outstanding on the revolving debt is limited to 80% of eligible
accounts receivable plus the lesser of $500,000 or 50% of eligible inventory.
The revolving debt is secured by substantially all assets of the Company and
expires on March 31, 1998. The balance outstanding as of October 31, 1996 and
April 30, 1997 is $2,580,981 and $2,571,098, respectively.
F-31
<PAGE> 93
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1996 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
Term note A, payable in quarterly principal
installments that escalate up to $562,500, bearing
interest at prime (8.25% at October 31, 1996) plus
2.0%, due in October 2000, secured by substantially
all assets of the Company, net of unamortized debt
discount of $128,000 and 112,000 as of October 31,
1996 and April 30, 1997, respectively................ $ 6,372 $ 5,825
Term note B, payable in semiannual installments in the
amount of excess cash flow for the preceding
six-month period, bearing interest at prime plus
2.0%, due in January 1998, secured by substantially
all assets of the Company............................ 1,000 450
Term note C, payable in quarterly installments of
$37,500, bearing interest at prime plus 1.75%, due in
October, 2000, secured by substantially all assets of
the Company.......................................... 638 563
Subordinated debt, payable in quarterly installments,
beginning January, 2002, of $125,000, due in October,
2003, bearing interest at 12%........................ 1,000 1,000
Unsecured note payable, with interest at 6.51%, payable
in monthly installments of $1,136, due in April
2006................................................. 100 92
Capital lease obligations with interest at 15.69%,
payable in monthly installments of $10,850 through
1999 (see Note 5).................................... 277 219
------- -------
9,387 8,149
Less -- Current portion................................ (1,466) (1,958)
------- -------
Long-term debt, less current portion................... $ 7,921 $ 6,191
======= =======
</TABLE>
Future maturities of the notes payable are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $1,466
1998........................................................ 2,528
1999........................................................ 1,703
2000........................................................ 2,213
2001........................................................ 605
Thereafter.................................................. 1,000
------
9,515
Less unamortized debt discount.............................. (128)
------
$9,387
======
</TABLE>
Subsequent to year-end, on March 7, 1997, the Company amended its three
term note agreements with its senior lender. The amended agreements provide for
the interest rate on the remaining outstanding principle to be the prime rate
per annum for the period March 7, 1997 through
F-32
<PAGE> 94
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
February 28, 1998, thereafter returning to the interest rate in the original
loan agreement. The term loans require two payments due in April 1997 totaling
$100,000. The Company is not required to make any further principal payments
until February 1998. All unpaid principal amounts from April 1997 until February
1998 are due in February 1998, at which time the original payment schedule is
resumed. In addition, the financial covenants were substantially eliminated. The
Company was either in compliance or had obtained waivers for all covenants.
9. RELATED PARTY
The Company has entered into a consulting agreement with the majority
shareholder that requires monthly payments for consulting services of $6,000 in
1996, and $7,250 in 1997. The agreement was terminated in March 1997 in
connection with the amendment to the financing agreement. The Company incurred
$72,000 of expenses in 1996.
10. REDEEMABLE PREFERRED STOCK
At October 31, 1996 the Company has 54,821 shares outstanding of
cumulative, convertible, Series A Preferred Stock with a par value of $.01 per
share. Cumulative dividends of $2.74 per share per year are payable quarterly.
The holders of Series A Convertible Preferred Stock shall be entitled to vote as
a separate class and have a liquidation preference equal to $45.60 per share.
Each share may be converted into common stock at the option of the holder,
or is automatically converted upon the successful closing of an initial public
offering in excess of $12.5 million pursuant to an effective registration
statement under the Securities Act of 1933. The preferred stock is convertible
into one share of common stock, except upon the sale of common stock, a stock
split or nonpayment of interest on the Company's long term debt obligations,
then the conversion rate is based on a calculation stated in the Articles of
Incorporation.
The holders of the Series A Convertible Preferred Stock may require, at
anytime between November 1, 2001, and October 31, 2003, which can be accelerated
if certain financial terms are met, the Company to purchase the preferred stock.
The purchase price is based on the higher of the appraised fair market value of
the Company or 12 times the average after-tax net income for the two most recent
years.
Also, the Company may redeem all or part of the Series A Convertible
Preferred Stock if certain financial conditions are met, between November 1,
1999 and October 31, 2001. The purchase price is based on the higher of the
appraised fair market value of the Company or 12 times the average after-tax net
income for the two most recent years.
The recorded value of the preferred stock is adjusted at each balance sheet
date based on the then-current estimate of the fair market value of the Company.
Such annual adjustments are reflected on the balance sheet as increases or
decreases to retained earnings. Based on management's estimate, there has not
been a material change in the fair market value of the Company between November
1, 1995, and October 31, 1996 and April 30, 1997, accordingly, no adjustments
have been made to retained earnings.
In addition, the preferred shareholders have the right of first refusal to
participate in any additional issuance or sales of capital stock.
11. COMMON STOCK
At October 31, 1996, the Company has 10,000 shares of common stock
outstanding, which is owned by an executive. Under an executive investment
agreement the executive can require the Company to
F-33
<PAGE> 95
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
purchase his stock upon either his involuntary termination or upon the preferred
shareholders requiring the Company to purchase their preferred stock. The
purchase price is the original amount paid by the executive adjusted for the
executive's fully diluted portion of the Company's retained earnings.
All transfers of stock are restricted and must be approved by the Company.
12. WARRANTS AND OPTIONS
Warrants for Common Stock
In connection with the financing of the purchase of assets from Anacomp,
Inc., the Company issued 6,400 detachable common stock warrants to its senior
lender during November 1995. The common stock warrants enable the senior lender
to purchase, for nominal consideration, 6,400 shares of the common stock of the
Company. At any time after either a triggering event or October 31, 2001, but
not later than October 31, 2003, the warrant holder may require the Company to
purchase the warrants. A triggering event is either an initial public offering
of the Company's common stock, a sale of substantially all the assets of the
Company or an exercise of any put option by the majority shareholder. The
purchase price is based on the fair market value of the Company as determined by
either the triggering event or an appraisal. The Company has the option to
purchase the warrants between October 31, 2000 and October 31, 2001 at the
appraised fair market value of the Company as adjusted by a triggering event
occurring within 18 months of the purchase of options.
The estimated fair market value of the warrants at the date of acquisition
was $160,000. This amount was recorded as part of shareholders' equity with a
corresponding offset recorded as a debt discount. The debt discount is being
amortized over the life of the debt using the straight-line method, which is not
materially different than the effective interest rate method.
The recorded value of the warrants for common stock is adjusted at each
balance sheet date based on the then-current estimate of the fair market value
of the Company. Such annual adjustments are reflected on the balance sheet as
increases or decreases to retained earnings. Based on management's estimate,
there has not been a material change in the fair market value of the Company
between November 1, 1995 and October 31, 1996 and April 30, 1997, accordingly,
no adjustments have been made to retained earnings.
Warrants for Preferred Stock
In connection with the issuance of preferred stock, the Company issued
warrants to its shareholders in November 1995. The warrants enable the
shareholders to purchase, for nominal consideration, 9,905 of the Series A
Convertible Preferred Stock of the Company at any time prior to November 3,
2003.
The holders of the warrants for the Series A Convertible Preferred Stock
may, at anytime during the put term, require the Company to purchase the
preferred stock warrants. The purchase price is based on the higher of the
appraised fair market value of the Company or 12 times the average after-tax net
income for two years. The put term is between November 1, 2001 through October
31, 2003, which can be accelerated if certain financial terms are met.
The Company may redeem all or part of the warrants for Series A Convertible
Preferred Stock if certain financial conditions are met, between November 1,
1999 and October 31, 2001. The purchase price is based on the higher of the
appraised fair market value of the Company or 12 times the average after-tax net
income for two years.
F-34
<PAGE> 96
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The recorded value of the warrants for preferred stock is adjusted at each
balance sheet date based on the then-current estimate of the fair market value
of the Company. Such annual adjustments are reflected on the balance sheet as
increases or decreases to retained earnings. Based on management's estimate,
there has not been a material change in the fair market value of the Company
between November 1, 1995 and October 31, 1996 and April 30, 1997, accordingly,
no adjustments have been made to retained earnings.
Options
Effective in November 1995, the Company established a performance stock
option plan for key employees. The Company may grant up to 30,000 options to key
employees at the discretion of the Board of Directors. The exercise price is $25
per share. The granted options become 100% vested on the Determination Date,
which is the earlier of October 31, 2000 or upon the sale of the Company. The
expiration of any granted options occurs on the earlier of two years after the
Determination Date or the sale of the Company. As of October 31, 1996 no options
were granted.
13. EMPLOYEE BENEFIT PLAN
The Company has established a profit-sharing plan providing retirement
benefits for substantially all of its employees. The contribution is
discretionary. The profit-sharing plan includes a "401(k)" feature so that
employees may contribute a portion of their salaries on a before-tax basis.
These contributions are also eligible for a Company matching contribution at the
discretion of the Company. There were no contributions to the profit-sharing
trust on behalf of the Company in 1996.
14. COMMITMENTS AND CONTINGENCIES
The Company is self-insured for a portion of its group health claims. A
purchased insurance policy limits amounts the Company may eventually pay to
approximately $75,000 per person per year. The Company paid $694,000 of claims
relating to 1996. Management believes the accrual for unreported claims at
October 31, 1996 is adequate.
15. ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS No. 121") was issued. Under SFAS No. 121, an impairment
loss must be recognized for long-lived assets and certain identifiable
intangibles to be held and used by an entity whenever event or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 is effective for financial statements issued for
fiscal years beginning after December 31, 1995, and must be adopted on a
prospective basis. Restatement of previously issued financial statements is not
permitted. Management feels that adoption of SFAS No. 121 will not have a
material impact on the financial condition or results of operations of the
Company.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation" (effective for fiscal years beginning after December
31, 1995) encourages, but does not require, employers to adopt a fair value
method of accounting for employee stock-based compensation, and requires
increased stock-based compensation disclosure if the fair value method is not
adopted. The Company does not intend to elect the fair value method for stock
options. Accordingly, implementation of this Statement will have no effect on
the Company's operating results or financial condition.
F-35
<PAGE> 97
IMAGE CONVERSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONCLUDED
16. POST OCTOBER 31, 1996 EVENTS
Loss of Customers
After year-end the Company lost its two largest customers that generated
$4.1 million and $.4 million of revenue and approximately $1.6 million and $.1
million of gross profit for 1996 and the six months ended April 30, 1997,
respectively. Management has reacted to losing the customers by significantly
reducing its cost structure including eliminating 85 positions and repositioning
the Company from its traditional micrographics based services to digital
services.
Issuance of Series B Preferred Stock
The majority shareholder guaranteed up to $1,000,000 of the outstanding
original term loans. In connection with the amendment to the term loan
agreements, the guarantee was called upon. As a result, the Company issued
31,667 shares of Series B Preferred Stock by April 30, 1997 to partially
reimburse the majority shareholder for the payment of debt.
Series B Preferred Stockholders have a liquidation preference equal to $30
per share and have cumulative dividends of $1.80 per share per year payable
quarterly. The holders of Series A and B Convertible Preferred Stock shall be
entitled to vote as a separate class.
Each share may be converted into common stock at the option of the holder,
or is automatically converted upon the successful closing of an initial public
offering in excess of $12.5 million pursuant to an effective registration
statement under the Securities Act of 1933. The preferred stock is convertible
into one share of common stock, except upon the sale of common stock, a stock
split or nonpayment of interest on the Company's long term debt obligations,
then the conversion rate is based on a calculation stated in the Articles of
Incorporation.
Sale of the Business
On July 17, 1997, Lason, Inc., agreed to purchase all the outstanding
equity instruments of the Company for approximately $20 million in cash and
stock, which includes the assumption of debt. Accordingly all equity instruments
have been classified in the equity section of the accompanying balance sheet as
the redeemable provisions are effectively eliminated.
F-36
<PAGE> 98
LOGO
<PAGE> 99
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses, to be paid solely by
the Company, of the issuance and distribution of the securities being registered
other than underwriting compensation:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $41,818.18
National Association of Securities Dealers, Inc. fee........ 14,300
Blue sky fees and expenses (including attorneys' fees and
expenses)................................................. *
Printing and engraving expenses............................. *
Transfer agent's fees and expenses.......................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Miscellaneous expenses...................................... *
----------
Total.................................................. $ *
==========
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any persons who are, or
are threatened to be made, parties to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action
or proceeding, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
or are threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director has actually and reasonably incurred. Pursuant to
Section 145, the Company may purchase insurance on behalf of its present and
former directors and officers against any liability asserted against or incurred
by them in such capacity or arising out of their status as such, including
liabilities under the Securities Act.
The Company's Amended and Restated Certificate of Incorporation and By-Laws
provide for the indemnification of directors and officers of the Company to the
fullest extent permitted by Section 145.
In that regard, the Amended and Restated Certificate of Incorporation and
By-Laws provide that the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, administrative or
investigative (other than action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the Company, or is
or was serving at the request of the Company as a
II-1
<PAGE> 100
director, officer or member of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of such corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Indemnification in connection with an action or suit by or in the right of such
corporation to procure a judgment in its favor is limited to payment of expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such an action or suit except that no such
indemnification may be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable for negligence or misconduct
in the performance of his duty to the indemnifying corporation unless and only
to the extent that the Court of Chancery of Delaware or the court in which such
action or suit was brought shall determine that, despite the adjudication of
liability but in consideration of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities of the Company were sold by the Company within the
past three years without registration:
On January 17, 1995, pursuant to a Purchase Agreement, the Company issued
1,000,001 shares of Class B Common Stock to GTCR Fund IV, for $10,000,000.
On January 17, 1995, pursuant to an Executive Stock Agreement, the Company
issued the following securities to the persons and for the consideration
described below:
(1) 402,987 shares of Class A-1 Common Stock to the R. Yanover Trust
for $402,987;
(2) 66,074 shares of Class A-1 Common Stock to the J. Yanover Trust
for $66,074;
(3) 469,064 shares of Class A-1 Common Stock to the Nesbitt Trust for
$469,064;
(4) 25,000 shares of Class A-1 Common Stock to Mr. Kowalski for
$25,000;
(5) 28,815 shares of Class A-1 Common Stock to Mr. Elland for $28,815;
and
(6) 8,058 shares of Class A-1 Common Stock to Mr. Carey for $8,058.
The foregoing sales and issuances of securities were exempt from
registration under the Securities Act by virtue of Section 4(2) thereof as
transactions not involving a public offering.
On February 26, 1996, the Company issued 1,705 shares of Class A-2 Common
Stock to Mr. Karl H. Hartig for $1,705 upon exercise by Mr. Hartig of his option
to purchase such shares granted pursuant to the Company's 1995 Stock Option
Plan.
On March 13, 1996, the Company issued 1,705 shares of Class A-2 Common
Stock to Mr. James J. Dewan for $1,705 upon exercise by Mr. Dewan of his option
to purchase such shares granted pursuant to the Company's 1995 Stock Option
Plan.
On May 2, 1996, the Company issued 1,705 shares of Class A-2 Common Stock
to Mr. Scott L. Christensen for $1,705 upon exercise by Mr. Christensen of his
option to purchase such shares granted pursuant to the Company's 1995 Stock
Option Plan.
The issuances of securities to Messrs. Hartig, Dewan and Christensen upon
exercise of their options were exempt from registration under the Securities Act
by virtue of Rule 701 thereof.
On July 16, 1996, the Company issued into escrow 2,718, 10,872, 3,433,
8,153, 5,433, 8,153, 18,530, 5,528 and 8,894 shares of Common Stock to Richard
J. Wolfson, the Richard Wolfson Charitable Remainder Unitrust, Donald M.
Wolfson, the Donald M. Wolfson Charitable Remainder Unitrust, Saul Wolfson, the
Saul Wolfson Charitable Remainder Unitrust, Bobby R. Stevens, Sr., Dr. Eugene
Wolchok, and the Eugene B. and Brenda R. Wolchok Charitable Remainder Unitrust,
respectively, as an estimated payment of a portion of the purchase price in
stock equal to $46,216.67, $184,827.60,
II-2
<PAGE> 101
$92,361.16, $138,611.93, $92,361.16, $138,611.93, $315,017.54, $100,783.15, and
$151,209.82, respectively, in connection with the acquisition by the Company of
Information and Image Technology of America, Inc. now known as Lason Systems,
Inc. Southeast.
On July 17, 1996, the Company issued into escrow 31,176 of Common Stock to
each of Robin L. Marshall and William E. Marvin as an estimated payment of a
portion of the purchase price in stock equal to $530,000 each in connection with
the acquisition by the Company of Great Lakes Micrographics Corporation. The
Shares have been released from escrow and delivered to Messrs. Marshall and
Marvin.
On January 31, 1997, the Company issued to Mark Roter 72,499 shares of
Common Stock in payment of a portion of the purchase price in stock equal to
$1,500,000 in connection with the acquisition by the Company of Churchill
Communications Corporation.
On February 5, 1997, the Company issued to the Arnold E. Good Living Trust,
Ronald C. Browder, Jr., the Marvin M. Good Living Trust and to Ronald C. Browder
Jr. and Jennifer M. Browder, 17, 10, 7,124 and 4,366 shares of Common Stock in
payment of a portion of the purchase price in stock equal to $350.20, $206.00,
$146,754.40 and $89,939.60, respectively, in connection with the acquisition by
the Company of Alpha Imaging, Inc. and Alpha Micro Graphics Supply, Inc.
On March 27, 1997, the Company issued to the Jerry and Mary Owen Family
Limited Partnership, 31,008 shares of Common Stock in payment of a portion of
the purchase price in stock equal to $654,894 in connection with the acquisition
by the Company of Automated Enterprises, Inc.
On June 27, 1997, the Company issued to Louis J. Civale, Jr. and to John
Civale, 2,672 and 1,781 shares of Common Stock in payment of a portion of the
purchase price in stock equal to $63,059.20 and $42,031.60, respectively, in
connection with the acquisition of American Micro Image, Inc.
On July 29, 1997, the Company issued to John R. Messinger, Michael Riley,
Daniel Bailey, John E. Hendricks, Donald Ferling, Geoffrey Gitelson, Mario
Disantis, John Elder, Sheryl Hehn, Glen Dedering, Peter Goodrich and Thomas
Joyce, 21,272, 8,598, 8,598, 3,512, 1,037, 1,060, 1,060, 1,020, 563, 202, 124,
and 395 shares of Common Stock in payment of a portion of the purchase price of
stock equal to $521,169, $210,661, $210,661, $86,041, $25,406, $25,982, $25,982,
$24,970, $13,804, $4,958, $3,034 and $9,679, respectively, in connection with
the acquisition of Image Conversion Systems, Inc. ("ICS"). The shares of Common
Stock of Messrs. Messinger, Riley, Bailey and Hendricks are subject to
forfeiture if ICS does not achieve certain levels of operating income during the
remaining quarters and year ending 1997 and for the quarters and year ending
1998.
The issuance of securities described in the seven prior paragraphs were
exempt from registration under the Securities Act by virtue of Section 4(2)
thereof as transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<S> <S>
1.1 Form of Underwriters Agreement.*
2.1 Asset Purchase Agreement and Equipment Purchase Agreement
dated May 29, 1995 by and among Lason Systems, Inc., Adcom
Mailers, Inc. and its affiliated company, Linkster
Leasing.(1)
2.2 Asset Purchase Agreement dated December 28, 1995 by and
among Lason Systems, Inc. and Mail-Away Corporation.(1)
2.3 Asset Purchase Agreement dated February 1, 1996 by and among
Lason Systems, Inc. and Diversified Support Services,
Inc.(1)
2.4 Stock Purchase Agreement with respect to the acquisition of
Delaware Legal Copy, Inc. dated March 25, 1996 by and among
Lason Systems, Inc. and the Shareholders (as defined
therein).(1)
</TABLE>
II-3
<PAGE> 102
<TABLE>
<C> <S>
2.5 Stock Purchase Agreement with respect to the acquisition of
Information & Image Technology of America, Inc. dated July
16, 1996 by and among Lason Systems, Inc. and the
Shareholders (as defined therein).(1)
2.6 Stock Purchase Agreement with respect to the acquisition of
Great Lakes Micrographics Corporation dated July 17, 1996 by
and among Lason Systems, Inc. and the Shareholders (as
defined therein).(1)
2.7 Stock Purchase Agreement with respect to the acquisition of
Micro-Pro, Inc. and MP Services, Inc. dated July 24, 1996 by
and among Lason Systems, Inc. and the Shareholders (as
defined therein).(1)
2.8 Stock Purchase Agreement with respect to the acquisition of
National Reproductions Corp. dated August 6, 1996 by and
among Lason Systems, Inc. and the Shareholders (as defined
therein).(1)
2.9 Agreement of Purchase and Sale of Stock with respect to the
acquisition of Image Conversion Systems, Inc. dated July 17,
1997.*
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company.(1)
3.2 Form of Revised Amended and Restated By-Laws of the
Company.(1)
3.3 Form of Revised Amended and Restated By-Laws.(2)
4.1 Form of certificate representing Common Stock of the
Company.(1)
5.1 Opinion of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin,
P.C. with respect to the validity of the shares of Common
Stock offered.*
10.1 Asset Purchase Agreement dated January 17, 1995 by and among
Lason Acquisition Corp., Lason Systems, Inc. and the J.
Yanover Trust, the R. Yanover Trust and Messrs. Nesbitt,
Kowalski, Elland and Carey.(1)
10.2 Purchase Agreement dated January 17, 1995 by and between the
Company and GTCR Fund IV.(1)
10.3 Executive Stock Agreement dated January 17, 1995 by and
among the Company and the J. Yanover Trust, the R. Yanover
Trust, the Nesbitt Trust and Messrs. Kowalski, Elland and
Carey.(1)
10.4 Stockholders Agreement dated January 17, 1995 by and among
the Company and certain of its stockholders.(1)
10.5 Registration Agreement dated January 17, 1995 by and among
the Company and the 1995 Stockholders.(1)
10.6 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the J. Yanover Trust, the R. Yanover
Trust and Mr. Yanover.(1)
10.7 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the Nesbitt Trust and Mr. Nesbitt.(1)
10.8 Employment Agreement between Lason Systems, Inc. and Gary
Monroe.(1)
10.9 Offer of employment dated April 30, 1996 from Lason Systems,
Inc. to Mr. Rauwerdink.(1)
10.10 Offer of employment dated June 12, 1996 from Lason Systems,
Inc. to Mr. Jablonski.(1)
10.11 1995 Stock Option Plan of the Company.(1)
10.12 Employee Stock Option Agreements dated January 17, 1995 by
and among the Company and each of Donald L. Elland, Richard
C. Kowalski, Gregory C. Carey, Karl H. Hartig, James J.
Dewan, Lawrence C. Jones, Scott L. Christensen, Daniel J.
Buckley, Paul G. Dugan, John H. Wallanse and David J.
Malosh.(1)
10.13 Employee Stock Option Agreement dated December 21, 1995 by
and between the Company and Mr. Monroe.(1)
10.14 Stock Option Agreement dated August 7, 1995 by and between
the Company and Mr. Gleklen.(1)
10.15 Employee Stock Option Agreement by and between the Company
and Mr. Rauwerdink.(1)
10.16 Employee Stock Option Agreement by and between the Company
and Mr. Jablonski.(1)
</TABLE>
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<PAGE> 103
10.17 1996 Lason Management Bonus Plan.(1)
10.18 Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust.(1)
10.19 Amendments to Lason Systems, Inc. 401(k) Profit Sharing Plan
& Trust.(1)
10.20 Loan Agreement dated January 17, 1995 by and among Lason
Systems, Inc., First Union National Bank of North Carolina,
as lender and as agent, and each other lender party thereto,
including Term Note and Revolving Credit Note.(1)
10.21 Security Agreement dated as of January 17, 1995 by and among
Lason Systems, Inc. and First Union National Bank of North
Carolina, as agent for the Lenders (as defined in the Loan
Agreement).(1)
10.22 Guaranty Agreement dated as of January 17, 1995 given by the
Company and extended to First Union National Bank of North
Carolina, as agent for the Lenders (as defined in the Loan
Agreement), and the Lenders for the benefit of Lason
Systems.(1)
10.23 Guarantor Pledge Agreement dated as of January 17, 1995 made
by the Company for the benefit of First Union National Bank
of North Carolina, as agent for the Lenders (as defined in
the Loan Agreement).(1)
10.24 First Amendment to Loan Agreement dated as of March 25, 1996
between Lason Systems, Inc. and First Union National Bank of
North Carolina, as agent.(1)
10.25 Second Amendment to Loan Agreement dated as of May 15, 1996
between Lason Systems, Inc. and First Union National Bank of
North Carolina, as agent.(1)
10.26 Third Amendment to Loan Agreement dated July 10, 1996
between Lason Systems, Inc. and First Union National Bank of
North Carolina, as agent.(1)
10.27 Lease Agreement dated as of September 3, 1985 by and between
Lason Systems, Inc. and Mart Associates as amended.(1)
10.28 Lease Agreement dated August 3, 1995 by and between Lason
Systems, Inc. and Kensington Center, Inc.(1)
10.29 Lease Agreement by and between Lason Systems, Inc. and The
Prudential Insurance Company of America.(1)
10.30 Fourth Amendment to Loan Agreement dated as of August 16,
1996 between Lason Systems, Inc. and First Union National
Bank of North Carolina, as agent, including the Amended and
Restated Revolving Credit Note and Interim Term Note.(1)
10.31 First Amendment to Lease dated as of July 26, 1996, by and
between Kensington Center, Inc. and Lason Systems, Inc.(1)
10.32 Form of Recapitalization Agreement among the Company and
certain of its stockholders, including Plan of
Recapitalization.(1)
10.33 Form of Voting Agreement among the Company and certain of
its stockholders.(1)
10.34 Form of Termination Agreement between Lason Systems, Inc.
and each of the Borrowers.(1)
10.35 Form of Redemption Agreement between the Company and Golder
Thoma, Cressey, Rauner Fund IV, L.P.(1)
10.36 Amendment to Employee Stock Option Agreement by and between
the Company and Mr. Gleklen.(1)
10.37 Agreement of Purchase and Sale of Stock with respect to
Churchill Acquisition.(3)
10.38 Employee Stock Option Agreement by and between the Company
and Mr. Rauwerdink dated December 17, 1996.(4)
10.39 Employee Stock Option Agreement by and between the Company
and Mr. Jablonski dated December 17, 1996.(4)
10.40 Employee Stock Option Agreement by and between the Company
and Mr. Monroe dated December 17, 1996.(5)
10.41 Employee Stock Option Agreement by and between the Company
and Mr. Ghadar dated January 15, 1997.(5)
II-5
<PAGE> 104
<TABLE>
<C> <S>
10.42 Amended and Restated Loan Agreement dated February 20, 1997,
between Lason Systems, Inc., First Union National Bank of
North Carolina, as lender and as agent and each other lender
party thereto, including, Revolving Credit Note and
Swingline Note.(5)
10.43 Amended and Restated Security Agreement dated February 20,
1997 by and among Lason Systems, Inc. and First Union
National Bank of North Carolina, as lender and as agent for
the Lenders.(5)
10.44 Amended and Restated Guaranty Agreement dated February 20,
1997 given by the Company and extended to First Union
National Bank of North Carolina, as agent for the Lenders,
and the Lenders for the benefit of Lason Systems.(5)
10.45 Amended and Restated Guarantor Pledge Agreement dated
February 20, 1997 made by the Company for the benefit of
First Union National Bank of North Carolina, as agent for
the Lenders.(5)
10.46 Lender Addition and Acknowledgement Agreement.*
10.47 First Amendment to Amended and Restated Loan Agreement.*
21.1 Subsidiaries of the Company.+
23.1 Consent of Coopers & Lybrand L.L.P.+
23.2 Consent of Arthur Andersen, LLP.+
23.3 Consent of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin,
P.C. (to be included in opinion filed as Exhibit 5.1)*
24.1 Powers of Attorney (included on signature page included in
this Part II).
27.1 Financial Data Schedule.+
</TABLE>
- -------------------------
+ filed herewith
* To be filed by amendment
(1) Incorporated herein by reference to registrant's Form S-1 filed on October
7, 1996, Commission File No. 333-09799.
(2) Incorporated herein by reference to registrant's Form 10-Q filed on May 15,
1997, Commission File No. 0-21407.
(3) Incorporated herein by reference to registrant's Form 8-K filed on February
18, 1997, Commission File No. 0-21407.
(4) Incorporated herein by reference to registrant's Form S-8 filed on December
23, 1996, Commission File No. 333-18551.
(5) Incorporated herein by reference to registrant's Form 10-K filed on March
31, 1997, Commission File No. 0-21407.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<C> <C>
I Condensed Financial Information of Registrant
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or not material, or
the information called for thereby is otherwise included in the consolidated
financial statements or notes thereto and therefore have been omitted.
II-6
<PAGE> 105
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Troy, State of Michigan
on August 4, 1997.
Lason, Inc.
By: /s/ GARY L. MONROE
--------------------------------------
Gary L. Monroe
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary L. Monroe and William J. Rauwerdink, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as a director and/or officer of
Lason, Inc), to sign and file any and all amendments (including post-effective
amendments) to this Registration Statement, or any registration statement
relating to this offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney have been signed on August 4, 1997,
by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<S> <C>
/s/ ROBERT A. YANOVER Chairman of the Board
- ---------------------------------------------------
Robert A. Yanover
/s/ GARY L. MONROE President and Chief Executive Officer
- --------------------------------------------------- (principal executive officer) and Director
Gary L. Monroe
/s/ WILLIAM J. RAUWERDINK Executive Vice President, Chief Financial
- --------------------------------------------------- Officer, Treasurer and Secretary (principal
William J. Rauwerdink financial and accounting officer)
/s/ ALLEN J. NESBITT Director
- ---------------------------------------------------
Allen J. Nesbitt
/s/ DONALD M. GLEKLEN Director
- ---------------------------------------------------
Donald M. Gleklen
/s/ BRUCE V. RAUNER Director
- ---------------------------------------------------
Bruce V. Rauner
/s/ JOSEPH P. NOLAN Director
- ---------------------------------------------------
Joseph P. Nolan
/s/ FARIBORZ GHADAR Director
- ---------------------------------------------------
Fariborz Ghadar
</TABLE>
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<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriters Agreement.*
2.1 Asset Purchase Agreement and Equipment Purchase Agreement
dated May 29, 1995 by and among Lason Systems, Inc., Adcom
Mailers, Inc. and its affiliated company, Linkster
Leasing.(1)
2.2 Asset Purchase Agreement dated December 28, 1995 by and
among Lason Systems, Inc. and Mail-Away Corporation.(1)
2.3 Asset Purchase Agreement dated February 1, 1996 by and among
Lason Systems, Inc. and Diversified Support Services,
Inc.(1)
2.4 Stock Purchase Agreement with respect to the acquisition of
Delaware Legal Copy, Inc. dated March 25, 1996 by and among
Lason Systems, Inc. and the Shareholders (as defined
therein).(1)
2.5 Stock Purchase Agreement with respect to the acquisition of
Information & Image Technology of America, Inc. dated July
16, 1996 by and among Lason Systems, Inc. and the
Shareholders (as defined therein).(1)
2.6 Stock Purchase Agreement with respect to the acquisition of
Great Lakes Micrographics Corporation dated July 17, 1996 by
and among Lason Systems, Inc. and the Shareholders (as
defined therein).(1)
2.7 Stock Purchase Agreement with respect to the acquisition of
Micro-Pro, Inc. and MP Services, Inc. dated July 24, 1996 by
and among Lason Systems, Inc. and the Shareholders (as
defined therein).(1)
2.8 Stock Purchase Agreement with respect to the acquisition of
National Reproductions Corp. dated August 6, 1996 by and
among Lason Systems, Inc. and the Shareholders (as defined
therein).(1)
2.9 Agreement of Purchase and Sale of Stock with respect to the
acquisition of Image Conversion Systems, Inc. dated July 17,
1997.*
3.1 Form of Amended and Restated Certificate of Incorporation of
the Company.(1)
3.2 Form of Revised Amended and Restated By-Laws of the
Company.(1)
3.3 Form of Revised Amended and Restated By-Laws.(2)
4.1 Form of certificate representing Common Stock of the
Company.(1)
5.1 Opinion of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin,
P.C. with respect to the validity of the shares of Common
Stock offered.*
10.1 Asset Purchase Agreement dated January 17, 1995 by and among
Lason Acquisition Corp., Lason Systems, Inc. and the J.
Yanover Trust, the R. Yanover Trust and Messrs. Nesbitt,
Kowalski, Elland and Carey.(1)
10.2 Purchase Agreement dated January 17, 1995 by and between the
Company and GTCR Fund IV.(1)
10.3 Executive Stock Agreement dated January 17, 1995 by and
among the Company and the J. Yanover Trust, the R. Yanover
Trust, the Nesbitt Trust and Messrs. Kowalski, Elland and
Carey.(1)
10.4 Stockholders Agreement dated January 17, 1995 by and among
the Company and certain of its stockholders.(1)
10.5 Registration Agreement dated January 17, 1995 by and among
the Company and the 1995 Stockholders.(1)
</TABLE>
<PAGE> 108
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10.6 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the J. Yanover Trust, the R. Yanover
Trust and Mr. Yanover.(1)
10.7 Credit Agreement dated January 17, 1995 by and among Lason
Acquisition Corp., the Nesbitt Trust and Mr. Nesbitt.(1)
10.8 Employment Agreement between Lason Systems, Inc. and Gary
Monroe.(1)
10.9 Offer of employment dated April 30, 1996 from Lason Systems,
Inc. to Mr. Rauwerdink.(1)
10.10 Offer of employment dated June 12, 1996 from Lason Systems,
Inc. to Mr. Jablonski.(1)
10.11 1995 Stock Option Plan of the Company.(1)
10.12 Employee Stock Option Agreements dated January 17, 1995 by
and among the Company and each of Donald L. Elland, Richard
C. Kowalski, Gregory C. Carey, Karl H. Hartig, James J.
Dewan, Lawrence C. Jones, Scott L. Christensen, Daniel J.
Buckley, Paul G. Dugan, John H. Wallanse and David J.
Malosh.(1)
10.13 Employee Stock Option Agreement dated December 21, 1995 by
and between the Company and Mr. Monroe.(1)
10.14 Stock Option Agreement dated August 7, 1995 by and between
the Company and Mr. Gleklen.(1)
10.15 Employee Stock Option Agreement by and between the Company
and Mr. Rauwerdink.(1)
10.16 Employee Stock Option Agreement by and between the Company
and Mr. Jablonski.(1)
10.17 1996 Lason Management Bonus Plan.(1)
10.18 Lason Systems, Inc. 401(k) Profit Sharing Plan & Trust.(1)
10.19 Amendments to Lason Systems, Inc. 401(k) Profit Sharing Plan
& Trust.(1)
10.20 Loan Agreement dated January 17, 1995 by and among Lason
Systems, Inc., First Union National Bank of North Carolina,
as lender and as agent, and each other lender party thereto,
including Term Note and Revolving Credit Note.(1)
10.21 Security Agreement dated as of January 17, 1995 by and among
Lason Systems, Inc. and First Union National Bank of North
Carolina, as agent for the Lenders (as defined in the Loan
Agreement).(1)
10.22 Guaranty Agreement dated as of January 17, 1995 given by the
Company and extended to First Union National Bank of North
Carolina, as agent for the Lenders (as defined in the Loan
Agreement), and the Lenders for the benefit of Lason
Systems.(1)
10.23 Guarantor Pledge Agreement dated as of January 17, 1995 made
by the Company for the benefit of First Union National Bank
of North Carolina, as agent for the Lenders (as defined in
the Loan Agreement).(1)
10.24 First Amendment to Loan Agreement dated as of March 25, 1996
between Lason Systems, Inc. and First Union National Bank of
North Carolina, as agent.(1)
10.25 Second Amendment to Loan Agreement dated as of May 15, 1996
between Lason Systems, Inc. and First Union National Bank of
North Carolina, as agent.(1)
10.26 Third Amendment to Loan Agreement dated July 10, 1996
between Lason Systems, Inc. and First Union National Bank of
North Carolina, as agent.(1)
</TABLE>
<PAGE> 109
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10.27 Lease Agreement dated as of September 3, 1985 by and between
Lason Systems, Inc. and Mart Associates as amended.(1)
10.28 Lease Agreement dated August 3, 1995 by and between Lason
Systems, Inc. and Kensington Center, Inc.(1)
10.29 Lease Agreement by and between Lason Systems, Inc. and The
Prudential Insurance Company of America.(1)
10.30 Fourth Amendment to Loan Agreement dated as of August 16,
1996 between Lason Systems, Inc. and First Union National
Bank of North Carolina, as agent, including the Amended and
Restated Revolving Credit Note and Interim Term Note.(1)
10.31 First Amendment to Lease dated as of July 26, 1996, by and
between Kensington Center, Inc. and Lason Systems, Inc.(1)
10.32 Form of Recapitalization Agreement among the Company and
certain of its stockholders, including Plan of
Recapitalization.(1)
10.33 Form of Voting Agreement among the Company and certain of
its stockholders.(1)
10.34 Form of Termination Agreement between Lason Systems, Inc.
and each of the Borrowers.(1)
10.35 Form of Redemption Agreement between the Company and Golder
Thoma, Cressey, Rauner Fund IV, L.P.(1)
10.36 Amendment to Employee Stock Option Agreement by and between
the Company and Mr. Gleklen.(1)
10.37 Agreement of Purchase and Sale of Stock with respect to
Churchill Acquisition.(3)
10.38 Employee Stock Option Agreement by and between the Company
and Mr. Rauwerdink dated December 17, 1996.(4)
10.39 Employee Stock Option Agreement by and between the Company
and Mr. Jablonski dated December 17, 1996.(4)
10.40 Employee Stock Option Agreement by and between the Company
and Mr. Monroe dated December 17, 1996.(5)
10.41 Employee Stock Option Agreement by and between the Company
and Mr. Ghadar dated January 15, 1997.(5)
10.42 Amended and Restated Loan Agreement dated February 20, 1997,
between Lason Systems, Inc., First Union National Bank of
North Carolina, as lender and as agent and each other lender
party thereto, including, Revolving Credit Note and
Swingline Note.(5)
10.43 Amended and Restated Security Agreement dated February 20,
1997 by and among Lason Systems, Inc. and First Union
National Bank of North Carolina, as lender and as agent for
the Lenders.(5)
10.44 Amended and Restated Guaranty Agreement dated February 20,
1997 given by the Company and extended to First Union
National Bank of North Carolina, as agent for the Lenders,
and the Lenders for the benefit of Lason Systems.(5)
10.45 Amended and Restated Guarantor Pledge Agreement dated
February 20, 1997 made by the Company for the benefit of
First Union National Bank of North Carolina, as agent for
the Lenders.(5)
10.46 Lender Addition and Acknowledgement Agreement.*
10.47 First Amendment to Amended and Restated Loan Agreement.*
</TABLE>
<PAGE> 110
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21.1 Subsidiaries of the Company.+
23.1 Consent of Coopers & Lybrand L.L.P.+
23.2 Consent of Arthur Andersen, LLP.+
23.3 Consent of Seyburn, Kahn, Ginn, Bess, Deitch and Serlin,
P.C. (to be included in opinion filed as Exhibit 5.1)*
24.1 Powers of Attorney (included on signature page included in
this Part II).
27.1 Financial Data Schedule.+
</TABLE>
- -------------------------
+ filed herewith
* To be filed by amendment
(1) Incorporated herein by reference to registrant's Form S-1 filed on October
7, 1996, Commission File No. 333-09799.
(2) Incorporated herein by reference to registrant's Form 10-Q filed on May 15,
1997, Commission File No. 0-21407.
(3) Incorporated herein by reference to registrant's Form 8-K filed on February
18, 1997, Commission File No. 0-21407.
(4) Incorporated herein by reference to registrant's Form S-8 filed on December
23, 1996, Commission File No. 333-18551.
(5) Incorporated herein by reference to registrant's Form 10-K filed on March
31, 1997, Commission File No. 0-21407.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
AS OF JULY 31, 1997
FULL NAME OF SUBSIDIARY PLACE OF INCORPORATION
- ----------------------- ----------------------
LASON SYSTEMS, INC. MICHIGAN, USA
AMERICAN MICRO IMAGE, INC. FLORIDA, USA
AUTOMATED ENTERPRISES, INC. VIRGINIA, USA
CHURCHILL COMMUNICATIONS CORPORATION NEW YORK, USA
CORPORATE COPIES, INC. VIRGINIA, USA
DELAWARE LEGAL COPY, INC. DELAWARE, USA
GREAT LAKES MICROGRAPHICS CORPORATION MICHIGAN, USA
IMAGE CONVERSION SYSTEMS, INC. ILLINOIS, USA
INFORMATION & IMAGE TECHNOLOGY OF AMERICA. INC.* FLORIDA, USA
MICRO-PRO, INC. NEW YORK, USA
MP SERVICES, INC. NEW YORK, USA
NATIONAL REPRODUCTIONS CORP. MICHIGAN, USA
PREMIER COPY GROUP, INC. GEORGIA, USA
*D/B/A LASON SYSTEMS, INC. - SOUTHEAST
<PAGE> 1
EXHIBIT 23.1
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Lason, Inc. is
included on page F-9 of this Form S-1 Registration Statement. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule included in this Registration Statement.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Detroit, Michigan
March 26, 1997
S-1
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the inclusion in this registration statement on Form S-1 of our
report dated July 28, 1997 on our audit of the financial
statements of Image Conversion Systems, Inc. We also consent to
the reference to our Firm under the caption "Experts".
/s/ ARTHUR ANDERSEN L.L.P.
Chicago, Illinois
August 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,727
<SECURITIES> 0
<RECEIVABLES> 27,412
<ALLOWANCES> 0
<INVENTORY> 2,580
<CURRENT-ASSETS> 36,470
<PP&E> 14,507
<DEPRECIATION> 3,221
<TOTAL-ASSETS> 106,727
<CURRENT-LIABILITIES> 11,445
<BONDS> 0
0
0
<COMMON> 89
<OTHER-SE> 8,886
<TOTAL-LIABILITY-AND-EQUITY> 106,727
<SALES> 53,658
<TOTAL-REVENUES> 53,658
<CGS> 8,395
<TOTAL-COSTS> 8,395
<OTHER-EXPENSES> 9,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 740
<INCOME-PRETAX> 6,226
<INCOME-TAX> 2,250
<INCOME-CONTINUING> 3,976
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,878
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
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